What does Loeb plan mean for DuPont's Delaware spinoffs?

Activist investor Daniel Loeb is demanding dramatic changes to the post-merger spinoffs proposed by Dow and DuPont. 

As part of their planned $130 billion merger, Dow and DuPont will consolidate and then separate into three separate companies within 18 months. Two of the proposed spinoffs – agriculture and specialty prdocuts companies – will be based in Delaware. A third business focused on material sciences will be based in Dow's hometown of Midland, Michigan. 

Loeb, who manages the New York-based hedge fund Third Point and a frequent critic of Dow Chief Executive Officer Andrew Liveris, has challenged that idea. He is asking Dow and DuPont to split into six new businesses by breaking up the specialty products spinoff into four publicly traded companies. 

The impact of Loeb's proposal on Delaware's future is unclear. It could mean Delaware would get five new businesses instead of two or it could leave the First State with only the agriculture spinoff. 

Rich Heffron, president of the Delaware State Chamber of Commerce, said Loeb's plan is concerning because it creates uncertainty. 

"We could get more businesses, but the reason he wants to do this is because those businesses would be easier to sell off," Heffron said. 

An investor presentation released by Loeb detailing his proposal does not address the spinoffs' future locations. Third Point spokeswoman Elissa Doyle said the company has no comment beyond the investor presentation. 

Loeb's plan would leave the agriculture spinoff unchanged but would split the specialty products business into four separate units that would either become public companies or sold off. He claims a tighter parsing of the specialty products business would create about $20 billion in value for shareholders of Dow and DuPont.

Under Loeb's plan, three specialty products unit would be separated into electronics, nutrition and biosciences, engineered materials and silicone. 

"The shareholder proposal optimizes the assets to create focused companies that will trade at premium multiples and will better align management incentives," Loeb wrote in the presentation.

A multiple is the highest price an investor would pay for a stock. 

Jim Butkiewicz, chair of the University of Delaware's economics department, said the impact of Loeb's idea depends on how seriously Dow and DuPont consider it. 

Activist investors have influenced DuPont's actions in the past. In 2015, Nelson Peltz, head of Trian Fund Management, launched a bitter and expensive proxy war for four seats on DuPont's board. Peltz claimed DuPont had become involved in too many non-core businesses that hurt the company's bottom line. 

As a result of Peltz's rhetoric, DuPont sold its hotel and theater business and put its country club on the sales block. 

"The big question is how Dow and DuPont respond," Butkiewicz said. "They could not do anything, or they could split up the companies differently."

Dow and DuPont vowed earlier this month to reassess the spinoff companies. The review is largely focused on the businesses' portfolios and might end with slight tweaks such as one unit headed to a different spin off than originally intended. 

DuPont said the review will not impact plans to locate two of the spinoffs in Delaware.

DuPont CEO Ed Breen hyped the spinoffs Wednesday at the company's annual shareholder meeting, expected to be the last in its 215-year history. 

"I hope you share our excitement for the long-term opportunity of the three spinoff companies," Breen told investors. "It will be exciting to see what those companies will do." 

Some plans for the spinoffs, including management, have already been disclosed. Butkiewicz said that could prevent Dow and DuPont from reviewing Loeb's plan.

"When the process is in motion, it is hard to change directions," he said. "Loeb's review is a big task, and if the process is in motion, it could be hard to change it just because someone thinks you should." 

Dow and DuPont issued a joint statement in response to Loeb's plan. It said the companies "are fully aligned regarding the objective of the review, and we continually solicit and welcome input from our shareholders." 

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.