3 Reasons Dow Chemical Company’s Stock could fall
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On 28th August the Motley Fool posted an article entitled 3 Reasons the Dow Chemical Company’s Stock Could Fall. It wouldn’t be hard to imagine that Dow’s refusal to address the Legacy of Bhopal would be one of those reasons and, in fact, this article lists it as the number one!
The Motley Fool says:
‘Unfortunately, Dow Chemical hasn’t taken responsibility for its subsidiary’s actions 30 years later — and it takes a rather arrogant stance against the Indian legal system.
‘The company doesn’t once mention the word “Bhopal” in its most recent 10-K (annual report to the Securities & Exchanges Commission). Instead, it lists UCC’s potential to have more asbestos-related suits (pending and future claims totaled $501 million at the end of 2013) filed against it in the United States (from the past 30 years) as its most likely source of legal action in the near term. There may not be much the company can do three decades after Bhopal, but there are still thousands living with permanent disabilities related to the disaster. Should international courts get involved with increased interest during the upcoming 30-year mark, then Dow Chemical could be forced to pay settlement fees, fines, or into a fund for the disaster.’
Interestingly, despite Dow’s claims to the SEC, the US asbestos related suits will NOT be its next legal action.
In fact Dow is summonsed to appear in the Chief Judicial Magistrates Court in Bhopal, on 12th November, where it must explain why it does not produce UCC to face the criminal charges outstanding against it (culpable homicide).
But, we believe that the Dow Chemical Company might actually perform better, financially-speaking, by taking a temporary hit on its share price.
A company this size can easily afford to settle all of the claims relating to the disaster- and then, later, profit from the increased good will toward it especially in the Indian market. In the meantime, Dow is already being harmed in material ways, the impacts of which are steadily increasing, although Dow’s management seems to be doing a fine job of keeping this reality away from its stakeholders.
This spring Dow excluded a shareholder resolution on the issue even though shareholders, including a US based investment fund, presented a body of evidence of the increasing financial, operational and reputational impact of Bhopal upon Dow. Dow management were able to get the resolution excluded from Securites & Exchange Commission 2014 proxy materials, just three days before they were due to be published.
It’s possible to judge the merits of the competing arguments by going through the records on Dow at the SEC website here:
http://www.sec.gov/divisions/corpfin/cf-noaction/2014_14a-8.shtml
To summarise, findings presented by shareholders to the SEC:
1. Bhopal has prevented Dow from pursuing a $5 billion strategic investment in India, whose specialty chemical sector is predicted to grow 17% annually and become the 4th largest market globally over the next decade.
2. Dow’s own documents show that the company has lost at least $300 million in Indian between 2008-16 due to Bhopal.
3. The Bhopal legacy has caused Dow’s Core Brand rating to fall 300% in six years, during which time Dow has made it into the top 20 corporations targeted by activists globally.
4. Dow management continues to mislead shareholders and regulatory authorities by denying that Bhopal is causing any financial, operational or reputational impact upon the company.
For these reasons, the Motley Fool article should be taken as a timely warning to all investors and shareholders.
