Dow Chemical (DOW) divulged a raft of strategic actions yesterday aimed at boosting shareholder value and incite growth. These moves include a raise in its dividend and share repurchase program, an increase in asset divestment target and a reduction of the company’s equity position in Kuwait Joint Ventures.
The U.S. chemical kingpin has bumped up its quarterly dividend by 14% to 42 cents per share from 37 cents, bringing its annual payout to $1.68 per share. The company has also beefed up its share repurchase program by $5 billion to $9.5 billion. It remains committed to complete its earlier $4.5 billion buyback program by end of this year.
Separately, Dow said that it is raising its asset sale target to $7 billion-$8.5 billion from its earlier goal of $4.5 billion-$6 billion. The company is on track to realize its earlier announced $4.5–$6 billion in proceeds from non-core asset sale by end-2015 and expects to meet its upwardly revised divestiture target by mid-2016. It has already completed $2.5 billion of divestments since 2013.
Dow also plans to reduce its equity stake in all of its Kuwait joint ventures, a move which would enable it to unlock capital to pursue more strategic purposes including enhancement of shareholder returns. The company will cut its equity base in the MEGlobal and Greater EQUATE joint ventures by selling a part of its interests in these ventures. Dow expects to complete these transactions by mid-2015.
Moreover, Dow has agreed to sell its additives and intermediates producing unit – ANGUS Chemical Company – to private equity firm Golden Gate Capital for more than $1.2 billion. The divestment of ANGUS, which is expected to complete during first-quarter 2015, is in sync with the company’s efforts to streamline its portfolio by shedding assets that no longer fit with its business strategy.
Dow also noted that it is realigning its external reporting segments (to five operating unit from six) that will enhance visibility regarding value drivers of each unit and allow more transparent peer comparison. The company also remains committed to its cost containment efforts and expects to deliver $1 billion in additional savings over the next three years.
Dow’s shares gained as much as around 3% in the trading session yesterday. The stock is up around 15% year-to-date and roughly 31% over a year.
Dow came under pressure in early 2014 after activist investor Dan Loeb's Third Point hedge fund bought a major stake in the company by reportedly forking out $1.3 billion. Loeb urged Dow to spin off its sluggish petrochemicals business and focus instead on high-margin, fast growing businesses with a view that the move will create more value for the company’s shareholders.
Dow remains actively focused on seeking opportunities to optimize its portfolio by selectively spinning off or selling its underperforming assets and gradually shift focus to high growth businesses. The company is carving out a major portion of its chlorine business that has been in operation for over 100 years. Commodity chemicals assets that are being identified for separation represent up to $5 billion in revenues.
Similar moves are also being pursued by other chemical makers including DuPont (DD) which is also being pressed by renowned activist investor Nelson Peltz’s Trian Fund Management for breaking itself up into two distinct companies. Trian, in Sep 2014, said that DuPont’s current conglomerate structure and flawed business plans are destroying shareholder value and the suggested move could materially improve the company’s financial performance and double the value of its stock within next three years.
However, both Dow and DuPont are actively defending themselves against such ‘breakup’ calls while remaining focused on executing strategic actions including portfolio optimization and disciplined capital allocation.
Both Dow and DuPont are Zacks Rank #3 (Hold) stocks.
Other stocks in the chemical space worth considering include Valhi, Inc. (VHI) and Kronos Worldwide, Inc. (KRO) with both holding a Zacks Rank #2 (Buy).
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