Dow Chemical Will Chop Up to 1,750 Jobs, But CEO Won’t See Pay Cut

Published: May 05, 2015

Dow Chemical Company Will Chop Up to 1,750 Jobs, But CEO Won’t See Pay Cut
May 5, 2015
By Mark Terry, BioSpace.com Breaking News Staff

Midland, Mich.-based Dow Chemical Company , under pressure from an activist investor, announced Monday that it will cut approximately 3 percent of its global workforce. This will result in the loss of 1,500 to 1,750 jobs.

In addition, the company expects to take charges related to the cuts worth about $330 million to $380 million in the second quarter of 2015. Once completed, the changes are projected to save the company $300 million annually.

“At our Investor Day last fall, we committed to a new, three-year $1 billion productivity drive,” said Howard Ungerleider, Dow’s chief financial officer in a statement. “Our productivity efforts continue to center on cost-out actions and doing more with the resources we have in place, all to enable higher earnings.”

There appear to be at least two elements motivating the changes. The first is a recent deal worth $5 billion in which Dow split off a major segment of its chlorine business and merged it with Olin Corp. This shift away from chlorine, which the company has been manufacturing since its founding more than a hundred years ago, is part of a strategic change from petroleum-based chemicals to more higher-margin chemicals.

That deal included $2 billion in cash to Dow, about $2.2 billion in Olin stock, and $800 million for the assumption of pensions and other liabilities. Part of the strategy is to divest Dow of $8.5 billion in nonstrategic businesses, while still manufacturing enough chlorine to keep its other businesses in supply.

“Our drive is to get better, not bigger,” said Andrew Liveris, Dow chief executive officer, in a statement.

The second major motivating factor is activist hedge fund Third Point. In 2014 the fund pressured to break off even more parts of its company than already planned, with an emphasis on splitting its specialty chemical and petrochemical businesses. Dow indicated that keeping the company intact kept costs lower. In partial response, however, Dow gave Third Point two board seats.

Third Point has a 2 percent stake in Dow. The hedge fund, run by Daniel Loeb, manages $17.5 billion in assets. The board seats appointment had its own acrimony. Dow agreed to add two directors, naming two directors that had served on other boards with Liveris. Third Point rejected Dow’s proposed directors. Previously Loeb had selected three candidates, giving Dow the opportunity to select two.

Third Point created a wbiste, www.value-dow.com, (no longer active) that included a video criticizing Dow. Dow responded indicating the video demonstrated a “fundamental lack of understanding” of how Dow ran.

On Nov. 21, 2014, Dow avoided a proxy fight with Third Point and added four independent directors to the board. This caused the stock to jump by about 4.5 percent. They had also signed a “one-year standstill agreement,” which basically means that Third Point won’t publically criticize Dow for a year.

Dow added two Third Point-anointed chairs, Raymond Milchovich and Steve Miller of Foster Wheeler AG and AIG, respectively. The remaining two were Richard Davis, chief executive officer of U.S. Bancorp and Mark Loughridge, former chief financial officer of IBM , who were earlier rejected by Third Point.

At least one critic has also pointed out that despite the cuts and downsizing, Liveris, who has earned over $69 million over the last three years, will not be taking a pay cut.



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