Dow Chemical Under Attack From Its Own Investors

Dow Chemical is back in the business news after receiving a nasty-gram from one of it's investors, Daniel Loeb of Third Point Management, a hedge fund company. Mr. Loeb is often described as an activist investor who is well known for writing letters which are directed to the public more than to the company's management despite the letter being addressed to the latter. The letters are usually scathing and this one is no exception.

"Dow shares have woefully underperformed over the last decade, generating a return of 46% (including dividends) compared to a 199% return for the S&P 500 Chemicals Index and a 101% return for the S&P 500. Indeed, in April 1999, nearly 15 years ago, an investor could have purchased Dow shares for the same price that they trade at today!"

And not being ignorant of the shale gas revolution (discussed yesterday), the zinger is this:" The company’s weak performance is even more surprising given that the North American shale gas revolution has been a powerful tailwind for Dow’s largest business exposure - petrochemicals."

The letter details how Dow is moving down the petrochemical stream to supposedly higher margin operations, even though the shale gas revolution should have driven them in the opposite direction. And it strongly suggests splitting the company into 2 - Dow Petchem (with the petrochemical operations) and Dow Specialty, with all the specialty chemicals.

I stated above that the letter was really to the public and that was proven true by Wall Street. After the announcement, Dow's stock went up 6.6%. Obviously someone thinks something is going to happen at Dow and it will be good. Hopefully it is good for the long term, as hedge funds can too often focus on short term gains. If your poker hand is 2, 5, 6, 10 & K across three suits, you can shuffle it all you want, or even put two cards in your left hand and three in your right and you still just have king-high. But maybe you can bluff better.

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