Loeb wins battle to appoint Dow Chemical directors

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Dow Chemical has agreed to appoint two directors nominated and paid by Third Point, the activist hedge fund, in a concession that will head off a potential battle at next year’s annual meeting.

Under the agreement announced on Friday, the company plans next year to add four new directors, two proposed by its management and two put forward by Dow and Third Point, led by the outspoken Dan Loeb.

Dow’s decision to accept Third Point’s choices – after rejecting them as recently as last week – follows an increasingly vocal campaign from Mr Loeb.

Third Point last week published a website and video critical of the record of Andrew Liveris, Dow’s chief executive since 2004, which was removed (see screenshot below) as part of Friday’s deal.

The two sides have agreed a standstill agreement, with Third Point pledging not to put forward any proposals for a vote until the restrictions expire, which is likely to be in mid-December next year.

Third Point has also agreed not raise its stake above 4.99 per cent, or to sue Dow, or to disparage the company or make any “ad hominem” attacks on its management in official filings, press releases or media interviews.

Dow has likewise agreed not to criticise Third Point and Mr Loeb.

The two directors backed by Third Point are Steve Miller, the non-executive chairman of AIG, and Ray Milchovich, the former chief executive of Foster Wheeler. They were named by the activist last week as its advisers on the future of Dow. They will start on the Dow board on January 1, and be backed by its management for reappointment by shareholders in a vote at next year’s annual meeting.

Third Point, which controls about 2.3 per cent of Dow’s shares, will pay the two men separately from any salary they may receive from Dow. Third Point said it had paid them $250,000 each, and said it would pay them another $250,000 if they joined the Dow board, plus more payments based on the performance of the Dow share price over the coming three-year and five-year periods. Under the deal, Mr Miller and Mr Milchovich can continue to advise Third Point, but will be banned from passing on information they have learnt at board meetings.

Dow’s shares closed up 2.6 per cent at $52.84 in New York trading. They have risen 19 per cent since Third Point’s stake was revealed in January, outpacing the 13 per cent increase in the S&P 500 index.

Last week Mr Liveris set out a series of moves intended to increase Dow’s appeal to shareholders, including raised dividends and share buyback plans, an extended disposal programme, and a restructuring of its reporting segments intended to improve transparency.

Third Point had earlier in the year suggested a more radical break-up of the company into petrochemicals and speciality chemicals businesses, but more recently had concentrated its criticism more on governance and leadership issues than on strategy.

The entrée of Mr Loeb’s representatives to the Dow boardroom came less than 24 hours after the activist scored another victory, edging out the chief executive of Sotheby’s after a long campaign. Bill Ruprecht, who Mr Loeb had said lacked the “innovation or inspiration” to lead the auction house, stood down by mutual consent, six months after Third Point joined the board of the auction house.

More recently, Third Point has targeted Amgen, demanding the drugmaker break itself up. Mr Loeb’s fund is up 4.6 per cent this year, according to filings by its London-listed sister vehicle.

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