Dow, DuPont review their planned three-way split

Dow Chemical Co. and DuPont Co. still plan to merge, cut billions more in costs and thousands of additional jobs, and reorganize into three smaller companies. But under pressure from impatient investors, the partners say they have hired corporate consultant McKinsey & Co. for a "comprehensive review" that could lead to changes in their proposals.

"If the results of our review demonstrate there is net greater long-term value creation to be realized through a change in the portfolio, it will be pursued," Alexander "Sandy" Cutler, DuPont's lead director, said in a statement.

The original 2015 plan, led by DuPont CEO Edward Breen and Dow chief executive Andrew Liveris, would break the combined companies into three spinoffs: a Delaware-based firm that would sell pesticides and genetically engineered seeds to farms; a Michigan-based industrial-materials company, including most of Dow's other businesses; and a Delaware-based "specialty" products company including DuPont's electronics, food additives, and other non-agriculture units.

But billionaire investor Dan Loeb's Third Point hedge-fund group, which had pressured Liveris to merge or break up the underperforming chemical giant, last month recommended splitting Dow and DuPont into six companies, not just three. Loeb's plan would eliminate the proposed DuPont successor company, reduce the size of the Dow successor, split off Dow's silicone business into a separate entity, and group the two companies' electronics, food-additives, and safety-materials businesses into three separate sector-oriented companies, modeled on the agricultural spinoff. The plan has won support from some other investors.

Tuesday night, the companies said they had agreed to "a comprehensive portfolio review" to figure out whether they should tweak it by moving additional businesses. Cutler and Dow lead director Jeff Fettig pledged to report findings to their fellow directors on the combined Dow-DuPont board "soon after the merger closes."

Should Dow and DuPont expand their spinoff plans? "Yes, they should go further. Prices are high, and they won't stay there indefinitely, so it may be a good time to sell assets," said Howard Trauger, managing director in the Philadelphia office of Carnegie Investment Counsel, a Cleveland-based firm that controls 88,000 shares of Dow and a similar number of DuPont shares.

As an investment banker in the 1980s, Trauger helped the former Rohm & Haas Co. build the electronic-materials business Dow now plans to transfer to the DuPont successor company, but which Loeb would spin off into a separate company. "It's a very profitable business, and a growth business" that should prove lucrative to investors, Trauger concluded.

Yet some investors worry about taking too many steps, now that regulators have approved Dow's and DuPont's plans. "We feel that the current plan to split into three companies would unlock the most long-term value," Michael Crofton, president and chief executive of Philadelphia Trust Co., told me. His company controls 348,000 shares of DuPont and about 6,000 shares of Dow.

"We would expect some additional transactions, either further spinoffs, or outright sales," Crofton added. But Loeb's six-way plan "is probably much too soon, and might prove disruptive, given that the current separation plan has been well thought out, and is being executed in a disciplined way."

The Dow-DuPont closing is planned for August, now that U.S., European, and other foreign regulators have been pacified by the planned sale of several DuPont pesticide facilities to FMC Corp. of Philadelphia and FMC's transfer of its food-additives business to DuPont. The spin-offs are planned for the 18 months after the merger.