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February 03, 2016 01:00 AM

Dow CEO to step down after DuPont merger

Jack Kaskey
Bloomberg News
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    Dow Chemical CEO Andrew Liveris

    MIDLAND, Mich.—Andrew Liveris, Dow Chemical Co. CEO, will leave the company after the completion of its merger with DuPont Co., marking a victory for activist investor Dan Loeb, who had called for his removal.

    Dow also appointed James Fitterling as president and chief operating officer. The 32-year Dow veteran previously had been vice chairman and COO.

    At 61-years-old, Liveris is a Dow lifer. The executive has spent four decades at the U.S. company. The Australian-born CEO will depart once the newly created DowDuPont is ready for a planned three-way split, no later than the second quarter of 2017, he said during Dow's fourth quarter earnings call on Feb. 2.

    Dow and DuPont announced Dec. 11 a merger of equals, to be followed by the separation of a trio of businesses focused on plastics, agricultural products and specialty materials. The next day, Loeb, the founder of hedge fund Third Point, wrote to Dow's board expressing his support for the deal.

    But he also questioned the timing of its announcement just two days before the expiration of a standstill agreement between Dow and the hedge fund, a person familiar with the matter said at the time. Loeb told the board that he didn't want Liveris involved in the merged company.

    “I totally see how the presence of a major, heavy-hitting activist could play a role, but at the same time this is a logical time for him to pass the baton,” said Matt Arnold, a St. Louis-based analyst at Edward Jones & Co. “This is a chance to go out with the ability to take credit for value creation and setting up the next chapter. All CEOs want to go out at a high point in a company's history.”

    The merger with DuPont would be the largest ever in the chemical industry. The companies have a combined market capitalization exceeding $99 billion, based on current trading. The deal is scheduled to close by the end of this year, Liveris said on the earnings call.

    The transaction was made possible because another activist investor, Nelson Peltz, co-founder of Trian Fund Management, shook things up at DuPont. Peltz took advantage of weaker-than-expected earnings following his failed proxy campaign for DuPont board seats, putting pressure on CEO Ellen Kullman to depart. Ed Breen replaced Kullman on a permanent basis in November and agreed to the Dow merger the following month.

    Loeb has been a thorn in the side of Liveris and Midland-based Dow since January 2014, when Third Point began criticizing the company's performance and advocated for its breakup. In November that year, Third Point explored a proxy contest and attacked Liveris in a video.

    A week later, Dow agreed to turn over two board seats to nominees of the hedge fund. The two sides also agreed to the standstill arrangement, which barred either one from publicly disparaging the other.

    Liveris has been CEO since 2004. His total compensation was $24.7 million in 2014 and he holds Dow shares with a market value of about $42.6 million, according to data compiled by Bloomberg. Liveris also has a pension worth $33.7 million as of Dec. 31, 2014, according to company filings.

    Liveris spoke with Loeb after the DowDuPont deal was announced, the CEO said in an interview before he disclosed his departure. Asked about Loeb's letter, Liveris said every activist has their business model.

    “They write those things, and then we talk,” he said.

    Third Point has a 2 percent stake in Dow, according to data compiled by Bloomberg. A spokeswoman for Third Point declined to comment on Liveris.

    Dow reported fourth-quarter earnings on Tuesday that beat analysts' estimates as margins expanded. That's the ninth consecutive quarter that the company surpassed profit expectations, according to data compiled by Bloomberg, a period that coincides with Loeb's investment in the company.

    “It's pretty hard to argue with performance,” Liveris said.

    Plastics News, a sister publication of Rubber & Plastics News, contributed to this report.

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