14:05 PM | August 15, 2014 | Robert Westervelt
Hedge fund Third Point reports holding a 22-million share stake in Dow Chemical, valued at $1.1 billion, according to its second-quarter report on US-traded equity holdings filed with SEC on 14 August. Third Point has called for Dow to consider spinning off its petrochemical operations. The reported holdings are in line with previous reports about the size of Third Point's stake.
Third Point also added stakes in FMC and DSM during the quarter. Dow is Third Point’s largest holding in the second-quarter SEC filing.
Third Point says in a July letter to investors that it had taken a new position in DSM and promptly pushed for the company to consider divesting its performance materials business. Third Point says that while performance materials, which includes engineering plastics and polymer intermediates, such as caprolactam, account for 55% of sales, the segment only generates 30% of Ebitda compared with 70% for the smaller nutrition segment. DSM confirmed last year that it would consider selling its caprolactam business but has not announced a deal.
“Based on our analysis, we believe that both the nutrition and performance materials segments should command higher multiples than DSM’s current forward multiple [of 7.5 times (x) enterprise value-to-Ebitda].,” Third Point says. Third Point estimates that DSM trades at a 40% discount to its sum-of-the-parts valuation and that comparable companies in the nutrition segment trade at 11–13x enterprise value-to-Ebitda. “The low group valuation is driven by the continued presence of the performance materials and polymer intermediates segments,” Third Point says.
“DSM offers compelling risk-reward as its portfolio continues to shift toward that of a high-quality, higher-multiple life sciences company,” Third Point says. “Exiting the caprolactam business should begin to address the 40% discount that the group trades at relative to our sum-of-the-parts valuation. With its successful history of divesting noncore businesses, we look forward to DSM management’s future efforts to unlock shareholder value via portfolio streamlining.”
Third Point has also revealed a new position in FMC—1.6 million shares, a 1.2% stake valued at $110.3 million, according to SEC filings. Hedge fund Jana Partners reports an even larger new position in FMC, 5.0 million shares, or a 3.7% stake, valued at $356 million. Jana says in its SEC filing it has call options on a further 1.4 million FMC shares. FMC announced in March that it plans to separate into two independent public companies by spinning off its lithium and soda ash businesses.
At DuPont, meanwhile, activist hedge fund Trian Partners held its reported stake steady, at 6.1 million shares, in the second quarter, less than 1% of shares outstanding.