Dow Chemical Hits The Trenches 

PHYLLLIS BERMAN / Forbes 30sep03

[Also see: Members of Congress tell Dow, Face Up to Your Bhopal Liabilities - US Congressional Letter to Dow 18jul03]

NEW YORK - Is "duck and cover" the new corporate motto at Dow Chemical?

With downgrades happening across the chemical industry, including yesterday's downgrade of Crompton, analysts are holding their breath to see when and how Standard & Poor's will rate Union Carbide, the Dow subsidiary that was once a miner and marketer of raw asbestos. After all, in early September, the chemicals giant saw Moody's reaffirm its senior unsecured debt rating in the low single-A tier. But the ratings agency downgraded Union Carbide's debt to junk.

In fact, in an unusual note, Moody's stated that Dow simply wasn't willing to supply much information about the asbestos liabilities for which it had been asked. Who knows what Moody's asked, but among the things the market doesn't know are such essentials as the number of claims brought against the company so far and the timing of insurance payments it should receive to cover these claims. Dow's silence may be merely a way to deprive the tort lawyers who represent asbestos claimants of any advantage against the company. But without that information, Moody's was treating Dow and Carbide as two separate entities.

Dow spokeswoman Cindy Newman said that the company would not comment on either Union Carbide's new debt rating or its legal strategy regarding Carbide's asbestos claims.

That strategy changed dramatically when William S. Stavropoulos was reinstated as chief executive on Dec. 12, 2002, the same day that Michael Parker, a 34-year veteran of the company, was fired after serving less than two years. (Stavropoulos had stepped down in 2000 because he had already served five years as CEO, the maximum under Dow corporate policy.)

William S. Stavropoulos
Chairman and CEO 
The Dow Chemical Company

It was under Parker that Dow in January 2002 accepted some of Carbide's asbestos liabilities in the U.S. and settled a Texas asbestos lawsuit originally filed against the unit. The news caused its stock to plummet 30% in little more than a week's time, wiping out $7.16 billion in equity.

Once Stavropoulos was back on board, the stock started to move up. The strength of Dow's stock was solidified when Stavropoulos announced he had hired a consulting firm that put an estimate on all of the company's asbestos exposure. According to the company's calculations, insurance receivables would more than cover that exposure.

Since then, Dow has become even more aggressive. CreditSights' Senior Analyst Andrew Brady explains Dow's strategy: "Dow has been hunkering down for a long ugly fight against these [asbestos] claims, and with precedents like Dow Corning and Bhopal...it is not new to legal wars." One piece of Dow's legal strategy, according to Brady, is that Dow recently replaced Carbide's $1.5 billion unsecured credit line with a secured $1 billion note with a 30-day demand provision.

Why do that? According to Brady, Dow accomplished two objectives. First, it was able to borrow at the investment-grade Dow level and effectively fund Carbide with cheap credit (versus paying market rates for a Carbide bank line). Secondly, Dow created a secured claim on Carbide's assets for itself. "If asbestos claims overwhelm the sub," says Brady, "Dow will have the right of first refusal to throw Carbide into bankruptcy, and at that point, Dow will have a first-priority claim on Carbide's assets."

All well and good, but the real question now is, should the claims overwhelm Carbide, can Stavropoulos defend against attacks by plaintiffs' lawyers on Dow's corporate veil? In its annual report, Dow asserts that the litigation and the asbestos contingencies are a Union Carbide issue and not related to Dow. It notes, however, that Dow personnel have been "retained" by Union Carbide to provide their experience in mass tort litigation. But plaintiffs' lawyers know a deep pocket when they see one, and they will do anything they can to get in it.

So far, at least, Dow's stock price is close to its 52-week high, as are many other stocks that the market is betting will benefit from an economic recovery. That's despite the fact that it was Stavropoulos who signed the Union Carbide deal in the first place in July 1999.

In fact, the Street credits him with two successful restructurings of the company. With the exception of BASF, every company in the chemical business was choosing either to produce commodity chemicals like Royal Dutch Petroleum, Occidental Petroleum and BP, or get out of commodity products altogether like Bayer and Imperial Chemical Industries. Stavropoulos choose not only to stay in both businesses, but also to grow in both, turning his company into the largest in the industry.

Can Stavropoulos beat off the tort lawyers with his silence? If not, can he at least limit the damage to the subsidiary? Stay tuned.

source: http://www.forbes.com/2003/09/30/cz_pb_0930dowchem.html 1oct03

William S Stavropoulos

Chairman of the Board, President, Chief Executive Officer at
The Dow Chemical Company
Midland,  Michigan
BASIC MATERIALS / CHEMICALS - PLASTICS & RUBBER
Officer since February 2001
Director since February 2001    

63 years old

Mr. Stavropoulos has been an employee of Dow since 1967. President, Dow Latin America 1984-85. Dow U.S.A. Commercial Vice President, Basics and Hydrocarbons 1985-87. Group Vice President, Plastics and Hydrocarbons, 1987-90. President, Dow U.S.A. 1990-93. Dow Vice President 1990-91, Senior Vice President 1991-93, Chief Operating Officer 1993-95, President 1993-2000, Chief Executive Officer 1995-2000, Chairman 2000 to date, President and CEO December 2002 to date. Director of BellSouth Corporation, Chemical Financial Corporation, Maersk Inc. and NCR Corporation. Board member of American Enterprise Institute for Public Policy Research, Fordham University, J. P. Morgan International Council and a Trustee of the Fidelity Group of Funds. Member of the University of Notre Dame Advisory Council for the College of Science.

Cash Compensation (FY December 2002) 
Salary $1,839,996

Bonus $0 

OTHER
Latest FY other short-term comp. 	$52,396
Latest FY other long-term comp. 	$80,590
Latest FY long-term incentive payout	$1,103,290
Total					$3,076,272


Stock Options (FY December 2002) 
		Number of 
		options     Market value  
exercised 	0   	    $0   

unexercised 	1,860,000   $5,964,546   
unexercisable 	435,000     $0   
Total 		2,295,000   $5,964,546  

source: http://www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearsheet.jhtml?passedPersonId=249751 1oct03