by John Kehoe
The clock was ticking for Andrew Liveris. Approaching his 12th year as boss of one of the world’s largest chemical companies and with an aggressive activist hedge fund breathing down his neck, the Australian expat needed to make a career-defining move.
One day last October, Dow Chemical Company’s chairman and chief executive was in his office on the phone to a Dow director. Liveris suddenly ended the call, saying “I’ve got to go.”
Breaking news was scrolling across his television screen. Dow’s industry peer, DuPont, had elevated director Edward Breen to interim chief executive. Within 15 minutes, Liveris had telephoned Breen and urged him to meet. He wanted to discuss a potential historic $US130 billion merger and split of the two iconic American companies.
Breen likes to joke that he had not even had time to find the bathroom at his new job. A corporate breakup specialist in a past role at Tyco International, Breen met Liveris six days later in a discreet corner of a small hotel in Princeton, New Jersey. After two months, the deal was sealed – a merger due to be completed by the end of 2016 and a three-way breakup of the combined entity by 2018.
At an interview at Dow’s office in Midland, Michigan, Liveris, wearing a red Dow badge and an Olympic tie to signify the company’s sponsorship of the sporting event in Rio de Janiero, tells BOSS the “transaction is seminal, it’s pivotal”.
“It’s very important you do that with the shareholder in mind, not your ego in mind,” he says.
Supremely confident Liveris does not lack self-esteem. “I think we all need a healthy ego,” he says.
Darwin-born Liveris divides opinion. Energetic, charismatic, self-promoting, persistent, boastful, ambitious, worldly, curious and bright are some of the the words that friends, current and former colleagues, politicians, business associates, investors and analysts have used to describe him.
“There is an underlying humility about Andrew that I think most people really don’t see because he is full of himself,” says Dow director Ruth Shaw.
He is endorsed by Saudi Arabia’s powerful energy minister, Khalid Al-Falih, former US Treasury and Goldman Sachs chief Hank Paulson, Coca-Cola boss Muhtar Kent, former World Bank president Jim Wolfensohn, Unilever chief Paul Polman and MasterCard boss and Dow director Ajay Banga, in telephone interviews with BOSS.
The gregarious son of Greek immigrants is highly motivated and an “extraordinary networker”, says the former federal treasurer-turned Australian ambassador to the US, Joe Hockey.
Such interpersonal skills have come with their share of criticism, however, and his links to the Clintons have at times drawn political scrutiny. In 2009, Liveris had Dow help pay for chartered flights for former president Bill Clinton to broker the transfer of two American journalists captured in North Korea.
Three years later, Clinton was keynote speaker at the launch of Liveris’s Greek charity in Athens.
A self-described “relationship-driven person”, Liveris says 21 years working in Asia taught him you must “show up” at events to build rapport.
“If you have relationships throughout the system, you can be the first to find out. You can know what’s going to go on. You can understand the threats to your enterprise and you’ll get the first call.”
Australian businessman Jacques Nasser, en route to becoming the global CEO of Ford, recalls first meeting Liveris in the 1990s. Liveris, six-and-a-half years younger, spoke to Nasser about juggling a global career with family and Australian roots.
Nasser encouraged the University of Queensland-schooled chemical engineer to pursue his career in the US, where they both worked in Michigan for many years. “I’m always partial to Aussies who get on the field and have a go. Andrew has always been that person,” says Nasser, now BHP Billiton chairman.
Aside from his role at Dow, Liveris is also a director of technology giant IBM, the most recent past chairman of the powerful US Business Council, a member of President Obama’s Export Council, and serves on the Turnbull government’s industry growth centres advisory committee.
Ups and downs
He is preparing to exit a 40-year career at Dow in the first half of 2017 and the path to this career-defining point has been meteoric, if also bumpy at times.
Dow Chemical’s $US60 billion market capitalisation makes it more valuable than most Australian-listed companies, except for Commonwealth Bank and Westpac and, in line with ANZ. Dow operates in 35 countries and has almost 60,000 employees. Liveris, 62, has built an imposing resume, but investors are divided over his 12-year performance as Dow’s boss.
When Liveris was promoted to chief executive in November 2004, Dow’s margins had shrunk to 10 per cent, from 30 per cent. US chemical producers had failed to innovate beyond making basics such as plastics and chlorine. State‑subsidised competitors in the Middle East and Asia joined a race to the bottom to drive down the price of basic chemicals. Liveris says Dow was like a “deer in the headlights”.
Early in his tenure as CEO, Liveris was undermined when two senior Dow figures, board member Pedro Reinhard and senior plastics executive Romeo Kreinberg, allegedly entered covert talks to sell and break up the company in a leveraged buyout without the board’s authority. The two were sacked and sued, but they countersued and the matter has since been settled. Speaking from Switzerland, Kreinberg says he “used to be friends” with Liveris but the power “went to his head”.
“The CEO and the chairman jobs were put together for the first time and there was nobody to control the guy,” Kreinberg says.
Liveris’ vision was to develop speciality chemical products so the company was less exposed to market cycles for commoditised chemicals. “It took 10 years but we’re back,” he declares.
Today, Dow invests $US1.6 billion a year in research and development, nearly 3 per cent of its revenue, to develop products for clients such as car maker Ford, consumer goods multinational Unilever, electronics manufacturer Samsung, building material supplier Sherwin-Williams and Tyson Foods.
Dow has developed a lightweight adhesive for constructing fuel-efficient cars, Omega-9 oil from canola and sunflower seeds to slash fat levels in foods, polishing pads to prep microchips for use in smart devices and reverse osmosis elements that help turn sewage into drinking water.
“Andrew has built up an innovation machine,” says Dow’s vice-president core R&D, Keith Watson.
Two-thirds of Dow’s revenue is now derived from speciality chemicals, up from 50 per cent in 2006. Since 2010, Dow has recruited 500 PhDs with doctorates in chemistry, chemical engineering, material science, robotics and statistics.
Matt Arnold, a senior equity research analyst at US stockbroker Edward Jones, was negative on Dow a few years ago after “eternal optimist” Liveris made mistakes. But since the merger with DuPont was announced he has switched his stock rating to a hold.
“He always found good things to say about the business regardless of the economic backdrop, which gives investors pause,” says Arnold. “But over the last four years execution was very good and it’s worked out well.”
Dow originally approached DuPont in 2006, but was rebuffed. Instead, Liveris pursued Rohm & Haas, a Philadelphia manufacturer of speciality chemicals for construction, electronic devices, packaging and household products. It became a massive financial gamble as Dow launched a $US16 billion bid, at a 70 per cent premium for Rohm & Haas shares, just before the global financial crisis. When US investment bank Lehman Brothers collapsed in October 2008, investors questioned Dow’s financial capacity to complete the deal.
Liveris made a rod for his own back, insisting he would “never cut the dividend”. By December 2008, Kuwait’s state-run Petrochemical Industries reneged on its pledge to pay $US7.5 billion for a petrochemicals joint venture with Dow, withdrawing key funding for Dow’s Rohm & Haas acquisition. Credit markets were barely open and 18 syndicate banks demanded new terms.
Dow’s share price sank below $US7 in March 2009, from about $US44 when Liveris took over. He broke his pledge and slashed the dividend by 64 per cent, before eventually securing a $US3 billion financing lifeline from Warren Buffett’s Berkshire Hathaway.
Reflecting on the tumultuous first quarter of 2009, Liveris admits it was a “journey through hell”.
“There was a period of time there where it certainly felt if I didn’t lift us out of this, the place was going to go under … It was right acquisition, wrong time.”
Attack of the hedge funds
A Dow approach to DuPont in 2014 was rejected by DuPont’s then-CEO, Ellen Kullman. DuPont instead fended off a hostile two-year campaign from renegade shareholder activist Nelson Peltz of Trian Fund Management, who pressed DuPont to split and shake up its board.
Almost in concert, hedge fund Third Point’s billionaire founder, Dan Loeb, took a $US1.3 billion stake in Dow in late 2013. Loeb assailed Liveris publicly and demanded Dow spin off its lower‑margin petrochemicals business.
Dow resisted, arguing that its raw material feedstock helped lower costs in its downstream businesses. In February 2014, Liveris told the Financial Times: “There is a lot of negative synergy involved in separating distinct businesses out of an integrated chemistry and biology company … the businesses are intertwined.”
By November 2014, Third Point attacked Liveris in an online video campaign that claimed Dow underperformed its competitors and highlighted Liveris’s “broken promises”. Reflecting on how personal the attacks got, Liveris muses: “It really helped being an Australian during that period.”
More seriously, Liveris adds: “I depersonalise everything when it’s the professional side of me.”
Dow and Third Point eventually struck a deal in November 2014, allowing the hedge fund to pick two new directors. Loeb agreed to stop publicly criticising Dow for 12 months. Two days before Loeb’s muzzle was due to be lifted, Liveris and new DuPont boss Breen – by then appointed permanent chief – unveiled the huge merger.
Sanford C. Bernstein chemicals equities analyst Jonas Oxgaard says the merger and split is a “dream” deal. “When his back is against the wall and he is running out of options, Liveris finds a way to get out of it on his own terms,” he says.
Dow insiders insist the heavy-handed activists had only a marginal impact on the company’s strategy though it may have influenced its timing. Dow was already selling $US5 billion worth of low-margin assets, including a chlorine producer it had owned since inception in 1897.
Dow director Ruth Shaw says Liveris articulated his ambitions for DuPont and to transform Dow towards specialised value-added products at a board strategy retreat at Newport, Rhode Island, way back in 2006. “It was a slow and difficult journey, not without some significant headwinds in terms of the global economy,” Shaw says. “He has never taken his eye off the end game.”
Dow director and Unilever CEO Paul Polman describes Liveris as a “change agent”. “Often analysts jump on change to either accelerate that change or claim credit,” he says.
For Liveris, a “big takeaway” is the growth in influence of short-term investors. “It’s causing people like me and our boards to say ‘how do I allocate capital?'” he says. He partly blames ultra-low interest rates of central banks for empowering activists in a yield-starved investment environment.
Liveris rejects the idea he switched from advocating integration to separation, saying he eschewed an “artificial” split. He pulls out a piece of paper and pen to draw how a generic breakup would have cost billions in disintegration costs, lost assets to feed downstream businesses and given suppliers pricing power. The tax-free triple spin‑offs will occur in 18-24 months, after Liveris exits. “We’re helping our shareholders by going deeper and narrower,” he says.
Some 85 per cent of the new Dow company’s estimated $US51 billion in revenue will be from three markets – transportation, infrastructure and packaging – compared with nearly 50 markets previously. A second entity will concentrate on agricultural science, DuPont’s great strength and the third will focus on specialty petrochemicals.
Thousands of jobs are being eliminated and $US3 billion worth of cost savings are targeted. The largest‑ever chemical merger must also clear a European competition review.
Questions over expenses
Activist pressure is not the only challenge Liveris has had to contend with. In 2014-15, he was accused of allegedly using company funds for outlays such as a safari in Africa, trips to the Super Bowl and Masters golf tournament and funding for his Greek charity.
A Dow fraud investigator, Kimberley Wood, raised concerns about corporate expenses incurred by Liveris between 2007 and 2010. Her claims were aired in court in an unfair dismissal case after she was made redundant in 2013. The case was settled in early 2015, so the allegations have never been tested in court.
A 2015 report by Reuters – verified by BOSS – stated that Dow’s former top auditor, Doug Anderson, also raised concerns in an internal 2013 memo that Dow’s disclosures on Liveris’ spending may have misled shareholders and regulators.
Liveris repaid $US719,923 after a Dow board-instigated review found expenses for vacations, sports events and cases of Grange Hermitage, among other items, “were not primarily business-related”.
He insists allegations of wrongdoing are “false” and says “the minute [he] became conscious” personal expenses were mistakenly mixed up, he repaid them.
Nomura analyst Aleksey Yefremov says Liveris’ performance at Dow is a “tale of two phases”. Over his near 12-year term, total shareholder returns of about 75 per cent lagged the S&P chemical industry index returns of about 200 per cent to end of August 2016.
Liveris says Dow’s returns in his early years were heavily influenced by decisions made by previous management and that some competitors like Lyondell Chemical went bankrupt or were taken over. Over the past five years, Dow’s returns are about 130 per cent versus 85 per cent for the chemical index. Dow’s share price is above $US50.
“My job is not to build today’s return; my job is to build tomorrow’s return,” he says.
He points to Sadara, a globally unique $US20 billion petrochemicals joint venture with Saudi Arabia’s state-owned energy giant, Saudi Aramco. Khalid Al-Falih, the Saudi energy minister and chairman of Saudi Aramco, tells BOSS that Liveris’ problem-solving and years of persistence – via phone calls, emails and face-to-face meetings – saved the complex deal from being aborted.
“He was able to do something that probably nobody else would have been able to do,” Al-Falih says. “I think it’s going to be one of the many legacies from Andrew.”
The integrated chemicals complex, comprising 26 manufacturing units, combines Dow’s technology and client relationships with Aramco’s capital and access to super-cheap oil and gas feedstock.
Al-Falih adds: “I’ve been with him in China, Japan, Europe, the US and Middle East, and seen him click with kings and heads of state, business leaders and chauffeurs of limousines or the man on the street.”
Cooking with gas
A boon to Dow’s earnings growth in recent years has been the plunge in the natural gas price, thanks to the US shale revolution. Liveris argues natural resource-rich countries like Australia and the US should set aside cheap gas for domestic energy-intensive manufacturing industry to lower costs and create jobs. The vocal stance has put him at odds with BHP, free market government ministers in Canberra, and some US business peers pushing for more free trade.
Debbie Stabenow, a US senator from Liveris’s home state of Michigan, says he has been a “thought leader” on energy and manufacturing policy.
There is also naked self-interest at play. “Why do we wax lyrical on natural gas and oil? It is $US30 billion of our costs,” Liveris acknowledges.
Liveris is a big advocate of international trade and is alarmed at the anti Trans-Pacific Partnership rhetoric of presidential candidates Donald Trump and Hillary Clinton, as he says it will cost jobs. Liveris has been fielding calls from Obama’s economic advisers to rally support for Congress to pass the TPP.
Disclosure records show that in 2012 Liveris personally donated more than $US40,000 each to groups backing Republican presidential candidate Mitt Romney and Democrat President Obama.
As the CEO of a public company, he will not officially endorse Clinton or Trump. Liveris says the “massive” voter disillusionment with the political class proves “what Trump talks about has an audience”, but Clinton is “the better candidate”.
“Hillary has shown us everything in terms of her competence and her credibility. I think she will definitely be well received internationally.”
Liveris spent $US300 on flowers for the then secretary of state Clinton on New Year’s Eve 2012. He has been a member of the invitation-only Clinton Global Initiative (CGI), a collaboration focused on women and poverty. In 2011, Dow’s philanthropy arm donated $US5.2 million to the CGI for science, technology, engineering and math (STEM) education programs and, in 2007, Dow pledged $US30 million worth of loan guarantees via the CGI to support 2000 community water systems in India.
Dow’s highly paid public relations advisory firm, Teneo, renowned for opening doors in Washington, is spearheaded by close Hillary confidant Declan Kelly and a former top aide to president Bill, Doug Band.
Bill was once Teneo’s “honorary” chairman, a role he has also filled for Liveris’s Greek charity, The Hellenic Initiative. Teneo’s Kelly and Band are past board members of the Greek charity. Dow tripled its annual payment to Teneo to $US16 million in 2012.
Among the political and media hard right in America, these relations have drawn questions about the special access the Clintons allegedly grant to favoured corporate associates.
Liveris has a simple explanation for Dow’s involvement with the Clinton body. Dow operates in Africa and the Middle East, where the CGI is fighting corruption and lifting governance standards. “You can’t go blind into Nigeria and try to do business,” he says. “You’ve got to go with people who are taken seriously with reputation and credibility.”
After Liveris ends his four decades at Dow, he plans to “dial back” his hefty workload from “150 per cent to 100 per cent” and spend more time in Australia.
Liveris will pocket about $US13 million in cash from the merger. In total his “golden parachute compensation” will top $US50 million, comprising mainly Dow shares amassed over his career.
Earlier this year, he and wife Paula splashed $8.5 million on a Point Piper mansion in Sydney – “not far from Malcolm’s,” says Liveris. He knows the PM through Tom Harley, non-executive chairman of Dow Chemical Australia and former Liberal Party federal vice-president, and spent Easter Sunday at the Turnbull residence.
Post Dow, Liveris is keen for non-executive public board roles with Australian, US and UK multinationals. “Global companies out of Australia are ideal,” he says. Liveris was briefly considered for a BHP board position a couple of years ago. He sees himself advising governments around the world on the intersection of business and public policy.
“I’m actually very interested in policy, unlike many other CEOs who have maybe been forced into it.
“I want to understand the secular trends that are affecting everyone at the heart of this [US] election. Why is populism taking over? Why are we becoming tribal? Where are the solutions for that?”
As for a possible Clinton cabinet role, Liveris is lukewarm but doesn’t rule it out.
He plans to have bases in Sydney, the US and perhaps London. “I think I’ll do what a lot of Australians like me have done. Rupert [Murdoch] being one of them, Greg Norman being another.
“I love Australia, but I don’t want to feel too small again. I want to be a globalist.”