Third Point Discloses Large Stake in Dow Chemical

Updated, 10:23 a.m. |
Shares of the Dow Chemical Company rose more than 6 percent in morning trading on Tuesday after the activist hedge fund Third Point said it had taken a large stake.

Third Point, which is run by Daniel S. Loeb, did not disclose the size of the Dow Chemical stake but said it was now its largest investment by dollar value.

In a quarterly letter to investors released on Tuesday morning, Third Point said Dow Chemical should hire outside advisers for a review of its business strategy. In particular, Third Point argued that the company, based in Midland, Mich., should separate its petrochemical operations through a spinoff.

Dow Chemical’s shares shot higher after the market opened on Tuesday, climbing above $46 a share before paring some gains. The stock closed at $43.07 on Friday.

In its letter, Third Point took a critical tone, saying Dow Chemical’s stock price had lagged behind those of rivals. The hedge fund pointed to “a poor operational track record across multiple business segments, a history of under-delivering relative to management’s guidance and expectations, and the ill-timed acquisition of Rohm & Haas,” referring to a $16.5 billion deal in 2009.

“We believe that Dow would best serve shareholders’ interests by engaging outside advisers to conduct a formal assessment of whether the current petrochemical operational strategy maximizes profits and if these businesses align with Dow’s goal of transforming into a ‘specialty’ chemicals company,” the letter said. “The review should explicitly explore whether separating Dow’s petrochemical businesses via a spinoff would drive greater stakeholder value.”

Rebecca Bentley, a spokeswoman for Dow Chemical, said in a statement that the company had delivered shareholder value. “We engage with all of our owners to understand their views and we welcome all constructive input with a common goal of enhancing long-term value,” she said. “We constantly review our company at the management and board level to increase our shareholder value and competitiveness.”

In December, Dow Chemical announced a plan to shed about $5 billion worth of assets in a streamlining effort.

Mr. Loeb, an investor known for his poison pen, has previously taken on companies likes Yahoo and Sony. The Yahoo campaign culminated in the hiring of Marissa Mayer as chief executive of the web company. But Sony has rebuffed Mr. Loeb’s proposal that it spin off part of its entertainment arm.