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TheStreet Open House

Third Point Presses Dow Chemicals Breakup Proposal

Stocks in this article: DOW

NEW YORK (TheStreet) - Third Point Capital Management said on Wednesday it is willing to sign a non-disclosure agreement with Dow Chemicals  (DOW)  to review the company's analysis that its businesses are better off combined.

After taking a stake worth more than $1 billion in the chemical company earlier this year, Third Point said it believed the company was worth more if it were to split up its diversified chemicals businesses. On Tuesday evening, Dow Chemicals said in a filing with the Securities and Exchange Commission the company and its external advisors had evaluated a proposal to break up the company, but found that such a move would negatively impact the its valuation.

Now, Third Point, run by portfolio manager Dan Loeb, appears willing to press its proposal. The fund said in a statement to TheStreet it was willing to sign a non-disclosure with Dow Chemicals to review the company's analysis.

"Third Point is prepared to sign an NDA to review and discuss the analysis that led Dow to its conclusions. We look forward to having a constructive dialogue among our own financial advisors, CEO Andrew Liveris, and Dow's Board, which we believe can ultimately result in significant value for all shareholders," Third Point said.

"Dow has asked shareholders to accept its word that Third Point's proposal to split the Petro and Specialty Chemical businesses would not increase value. Unfortunately, Dow's lack of transparency means we know neither the methodology nor even the advisors used to arrive at its decision. Transparency is essential considering Dow's undistinguished track record of capital allocation decisions," the fund added.

Third Point had advocated that Dow Chemicals split into separate petrochemical and a specialty chemicals, unlocking value among the company's diversified assets. In response to those proposals, Dow Chemicals retained advisors to evaluate how the company could optimize the value of its assets for shareholders. Ultimately, Dow concluded a break up wouldn't make sense.

"Dow's Board and Executive Management team, in conjunction with external advisors, previously and recently conducted an evaluation as part of a broad and thorough review of the Company's strategic options. That review found that a break-up of the Company in a significant manner (simplistically described as petrochemical and specialty chemical assets) created no productivity or capital allocation improvements, but rather negatively impacted Dow's value proposition which leverages scale, integration costs and technology benefits across multiple science-based, vertically integrated value chains," Dow said in a SEC filing.

"The strategic review outlined a series of actions to maximize Dow's value, which the Company has been implementing. Dow believes that the specific actions it has taken to transition Dow from a commodity-based model into a vertically integrated science Company focused on specialty materials, agriculture, and specialty plastics, is the right strategy to maximize value for all of our shareholders in the short and long term," the company added.

Given Third Point's statements, it doesn't appear the fund and its aggressive head Daniel Loeb are not considering backing down.

Jefferies analyst Laurence Alexander said Dow's statements mean the company might consider acquisitions and a more upstream in its feedstock business to boost its current market position.

"We believe Dow could pivot over the next 12 months in two ways that investors may not have discounted: more aggressively upstream (to improve returns by capturing feedstock economics) and back onto the technology M&A trail. In effect, build on Dow's strengths rather then dismantle them," Alexander said in a Wednesday note to clients.

Dow Chemicals shares were falling over 1% in Wednesday afternoon trading. Shares have gained over 40% in the last 12 months.

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