Dow Chemical firings seen leaving leadership gap
Fri Apr 13, 2007 5:30pm ET
NEW YORK, April 13 (Reuters) - Dow Chemical Co.'s firing of two top officials has left a big hole to fill in the leadership of its specialties segment and may have indicated a split in management over strategy, analysts said on Friday.
The largest U.S. chemical maker fired Pedro Reinhard, a senior adviser and former chief financial officer, and Romeo Kreinberg, the head of its specialties businesses, on Thursday, accusing them of having unauthorized discussions to sell the company. Kreinberg denied it. Reinhard could not be reached for comment.
Dow has said the firings had the full support of its board.
Kreinberg's departure leaves Dow with an especially big void in light of its strategy to spur growth via its high-margin specialties businesses, HSBC analyst Hassan Ahmed said.
"The whole strategy all along has been to grow the specialty businesses and that is Romeo's forte. All of a sudden with him not being there, that is a big big hole that they have to fill," Ahmed said.
"So clearly management has to address this, particularly with some of the recent changes that they had made," Ahmed added.
Last month, Dow announced a new management structure and named a five-person executive leadership team. Kreinberg was a member of this five-member team, while also overseeing the operations of its specialties businesses, which contributed almost half the company's annual revenue in 2006.
"Obviously they've laid off one of their most important guys in Romeo. He was running half their business and that, too, the high-growth side of it," said Ahmed.
The Midland, Michigan-based company has denied newspaper reports that it was a leveraged buyout target, saying it has had no such discussion, but speculation over possible deals has boosted its stock since January this year, analysts said.
Andrew Liveris, Dow's chairman and chief executive, has consistently said that he plans to reduce the cyclicality of the company's earnings and improve its earnings growth by increasing investment in the specialty businesses and growing the commodity businesses through joint ventures.
Some analysts have said Dow should take a more aggressive tack through acquisitions, share buybacks or spin-offs.
"One conclusion we draw from yesterday's announcements are that at least some members of senior management and Dow's Board of Directors appear to believe greater value can be unlocked via aggressive moves," JP Morgan analyst Jeffrey Zekauskas wrote in a note to investors.
"Profound differences regarding the strategic direction and resource allocation probably led the two executives to pursue the discussions separately," Zekauskas added.
Reinhard, who was chief financial officer of Dow from 1995 to 2005, is still a member of the company's board and will continue to occupy that post unless he resigns from the board or is voted off the board at its annual meeting in May.
In a proxy statement filed with regulatory authorities late last month, Dow had recommended that shareholders reelect its entire 12-member board, including Reinhard.
However, Chris Huntley, a spokesman for Dow, said that the company would file an amendment to the proxy if Reinhard does not resign from the board.
"There will be some change to the recommendation before the meeting, there is no question about that," Huntley told Reuters on Friday.
Dow said it received information on April 10 about the alleged actions of Reinhard and Kreinberg from a source it would not identify.
"They conducted multiple meetings, in multiple locations, over a period of several months, about the potential acquisition of the company," said Huntley.
Dow closed down 12 cents at $45.88 Friday on the New York Stock Exchange. Shares of the company have risen about 10.5 percent over the last three months, while the Standard and Poor's Chemicals Index <.GSPPM> has risen only 3.25 percent.
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