Dow and Sotheby’s act to please investors

Groups under pressure from activist investor Loeb

Two companies under pressure from outspoken activist US investor Daniel Loeb on Wednesday responded with moves aimed at pleasing shareholders even as they rejected his central arguments.

Dow Chemical, in which Mr Loeb’s Third Point fund holds an estimated 2.4 per cent stake, reported earnings well ahead of analysts’ expectations, raised its dividend 15 per cent, and launched a $4.5bn share buyback.

Sotheby’s, another company under pressure from Third Point, said it would return up to $450m to shareholders through a special dividend and share buyback. Third Point is the largest stakeholder in the auction house with a 9.3 per cent stake.

Mr Loeb declined to comment on either company’s move.

Third Point revealed this month it held a significant stake in Dow, which was said by one person with knowledge of the situation to be worth about $1.3bn. In a letter to its investors it strongly criticised the company’s performance and strategy. The fund also called for Dow to split off its petrochemicals business, which generates roughly two-thirds of its earnings.

As he announced Dow’s earnings, Andrew Liveris, chief executive, said the company was “open to all good ideas” and was making some disposals. But he said the company had considered and rejected the radical moves proposed by Third Point.

“You have got to look at the complexity of the group and the negative synergies from separation,” he told the Financial Times. “We have looked at separation, including the ideas that are on the table, and we believe we are on the right path with what we have announced.” Dow said in December that it would sell or spin off its chlorine-based operations, which have annual revenues of roughly $5bn, which is about 9 per cent of the group’s total.

Mr Loeb’s attack on Sotheby’s has been more lengthy and publicly scathing. Last autumn he criticised the business for “chronically weak operating margins, deteriorating competitive position … lack of leadership and strategic vision at its highest levels”. He also alleged in a letter that the company was fundamentally misaligned with shareholder interests, struggling internationally and lagging behind arch-rival Christie’s in emerging art markets.

Other investors are also putting pressure on Sotheby’s, including Richard Maguire’s Marcato Capital Management, which holds a 6.6 per cent stake. Mr Maguire said that dividend and buybacks were “a modest step in the right direction”, but that Sotheby’s could do more to return capital to shareholders, up to $1bn within 12 months.

The auction house countered on Wednesday by pointing to record-breaking sales last year both in Hong Kong and Doha and combined 2013 sales worth $5.1bn, making it the world’s fastest-growing auctioneer.

“The message we are delivering is clear – we are returning meaningful capital to our shareholders, now and in the future, and establishing a framework that positions the company to succeed in an ever-changing marketplace,” said Sotheby’s chief executive Bill Ruprecht, who has rejected Mr Loeb’s calls for his resignation.

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