Hedge fund Third Point is considering launching a proxy contest at Dow Chemical Co after negotiations over board seats with the largest U.S. chemical company broke down on Thursday, two sources familiar with the talks said.
Dow had offered to expand its board and add two directors who had previously served on other boards with Dow Chief Executive Officer Andrew Liveris, but the hedge fund rejected the proposed directors, the people said.
Third Point, one of Dow's biggest investors with a 2 percent stake, had been talking to the company for months and was told last Thursday that a deal on board representation was imminent, the people said. The $17.5 billion hedge fund, run by Daniel Loeb, had previously selected three candidates and asked the company to pick two of them.
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Third Point now has several weeks to make a final decision before a deadline to launch a proxy contest, where it would nominate its own slate of directors for shareholders to vote on next year at the annual meeting.
As one of the hedge fund industry's most closely watched funds, Third Point has played an increasingly powerful role in board rooms at U.S. companies, having handpicked a new CEO at Yahoo and joined the board at auction house Sotheby's this year.
Third Point first disclosed its stake in Dow in January and asked it to consider splitting into two companies by separating its commoditized raw material units from specialty chemicals businesses. Dow has said that keeping its units together helps lower costs.
Raising the pressure on Dow on Thursday, Third Point launched a new website, http://www.value-dow.com, with a video that says the company has broken its promises and made excuses for lagging behind rivals.
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It also said it named Robert Miller, the chairman of the American International Group, and Raymond Milchovich, the former chief executive of the airplane maker Hawker Beechcraft, as members of an advisory board to guide Dow. The men were two of the three director candidates Third Point put forth, the sources said.
Dow said statements in the video released by Third Point show a "fundamental lack of understanding" of the company and said its board and management were working in the best interests of shareholders.
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On Wednesday, Dow said it would raise its dividend 14 percent to 42 cents and increase its share buy-back program.