Dow Chemical’s chief executive Andrew Liveris, fresh from orchestrating a $130 billion merger with U.S. rival DuPont, on Tuesday announced plans to retire by mid-2017, a step he takes after years of pitched battles with an activist shareholder unhappy with his leadership.
On a quarterly earnings call with analysts, Liveris said he would step aside by the second half of next year. The news represents a victory for Daniel Loeb, the head of New York hedge fund Third Point. The fund has a 2 percent stake in Dow and Loeb has been questioning Dow’s leadership since 2014, amid slumping share prices.
A 40-year veteran of Dow, Liveris has been CEO of the Midland, Michigan-based company since 2004. Over that period, the Australian engineer has become one of the world’s best known CEOs, delivering keynotes at the Davos World Economic Forum, and serving on an advisory panel to U.S. President Barack Obama.
On Tuesday, Liveris suggested that he will stick around long enough to see through Dow’s merger with DuPont, which envisages combining the storied U.S. chemicals companies and then splitting them into three separate businesses. If the plan succeeds, the firms that emerge will be global powerhouses in the plastics, specialty chemicals and agricultural seeds industries.
Liveris will leave “when we are set up to be spun off, but no later than the end of Q2 2017.”
When the merger was announced on Dec. 11, the companies said that Liveris planned to take on the role of executive chairman of the combined firm, while DuPont’s CEO Edward Breen would become CEO. Although Liveris could still be executive chairman for a short time, his plans to depart quickly took some on Wall Street by surprise.
The announcement may have helped boost Dow’s share price on Tuesday, when it rose by 5.8 percent to $45.03, a three week high. It came after Dow also reported quarterly earnings that beat Wall Street’s expectations.
“Investors now have some certainty about when Mr. Liveris will be stepping down,” said Arun Viswanathan, an analyst at RBC Capital Markets in New York. “That was likely a factor in today’s stock performance. There had been uncertainty about what future role he might play once the merger is complete.”
INVESTOR CONCERNS
Loeb has said he approves of the merger plans, but called for removing Liveris from the company’s leadership to allow new blood to take the helm. The move may quell investor concerns about any future power struggle between Liveris and Breen, an executive best known for splitting up U.S. manufacturer Tyco in the wake of an accounting scandal.
It was not immediately clear what role, if any, Loeb and Third Point played in negotiating the timeline for Liveris’s departure. The Dow chairman and CEO, age 61, had said in the past that he was contemplating retirement.
Liveris said the timeline would “enable successful leadership handover.” A Dow representative said his plans had nothing to do with any pressure from Loeb.
“We thank Mr. Liveris for his role in effectuating the Dow/DuPont merger and wish him success in his next chapter,” Loeb said in a statement. “We look forward to engaging constructively with the new management teams at the combined Dow/DuPont’s post-merger spin-cos as they create significant value for shareholders.”
Dow and DuPont expect their merger to close later this year, while spin offs into three separate companies could happen next year.
For the past year, the tension between Dow and Third Point has largely played out behind the scenes. After Loeb launched a damning 2014 public campaign accusing Liveris of “broken promises” to Dow shareholders during his tenure, Dow and the hedge fund reached a one-year agreement to refrain from criticizing each other. As part of the deal, four new independent directors were appointed to Dow’s board, two of whom were designated by Third Point.
That agreement ended in December, and Loeb began expressing concerns once again about Liveris. In a letter to the company’s board, he reportedly questioned whether the DuPont merger was rushed to completion to avoid a public conflict with Third Point. He also opposed Liveris remaining on as a key executive after the merger.
INTERNAL AUDIT
In addition to sparring with Loeb, Liveris also has been contending with a controversy over his spending of Dow funds.
Reuters reported last year that internal auditors at Dow had for years questioned whether the CEO was spending company funds on non-business items including family vacations. Dow says any spending issues were resolved long ago. In a 2011 proxy statement, Dow said that Liveris had reimbursed more than $719,000 in primarily non-business expenses that the company’s Customer Events department had failed to bill him for due to processing errors.
Reuters reported last June that the U.S. Securities and Exchange Commission had taken an interest in the matter, launching an investigation into Dow. The misspending allegations were laid out in now settled lawsuits filed by a former Dow fraud investigator, Kimberly Wood, who said she was fired after repeatedly questioning the CEO’s spending. The SEC has declined comment on its investigation.
Also on Tuesday, Dow said it was naming its chief operating officer, James Fitterling, as the company’s new president. Fitterling will report to Liveris until the CEO departs. A 32-year veteran of Dow, Fitterling has served in various executive roles and his elevation to president may signal that he is being groomed for one of the leading post-merger executive positions.
Ahead of the merger, Dow is targeting an additional $300 million in cost savings this year, building on the $345 million it realized last year.
It also plans to cut 500 more jobs, taking its total workforce reduction to 2,200, Liveris said, adding that the company has laid off 1,200 employees so far. Dow employed 49,500 people worldwide in 2015.
Dow’s fourth quarter adjusted profit of 93 cents per share handily beat the average analyst estimate of 70 cents.
