Dow might be the dominant partner in the merger of Dow Chemical Corp. and Union Carbide Corp., but some outside observers suggest Union Carbide's investment unit should lead the combined pension operation.
Combined, the two companies' employee benefit assets exceed $14 billion.
Benefit Capital Management Corp., a wholly owned subsidiary of Union Carbide -- both in Danbury, Conn. -- manages almost all of the company's defined benefit assets.
Said Joel Rich, senior vice president and head of the corporate retirement plan practice at Segal Co., New York: "In terms of net return after expenses, I assume Benefit Capital would be looked at closely" to manage the pension assets.
Michael F. Hoben is president and chief investment officer of Benefit Capital. "We are eagerly, not anxiously, waiting to talk" to Dow officials, Mr. Hoben said.
"We think we have a good story to tell. We are providing investment management at a fraction of the cost that sponsors pay for outside investment management, and our numbers are very good."
Benefit Capital's combined domestic equity portfolios returned 20.04% annualized for the 10 years ended June 30, vs. 18.8% for the Standard & Poor's 500 stock index, said Mr. Hoben. The 28.4% five-year return also beat the S&P 500's 27.9%.
Mr. Hoben said the company's bond strategies outpaced the benchmark Lehman Long Government Duration index over two, three, four and five years.
He said it wouldn't make sense for Dow to move Benefit Capital to Dow's home in Midland, Mich.
"As a money manager, we must have proximity to company managements that come to the city (New York) . . One of us is usually in the city every day meeting with company management," he said.
Pension executives at both companies said they hadn't been consulted by top management in connection with the merger, nor had they heard anything about the fate of their departments.
Dow confirmed U.S. pension assets "in excess of $8 billion," but had little else to say. A receptionist passed on a message from the pension area which said, "We don't have anything to say. We just don't have any information yet."
Employees at Union Carbide, meanwhile, are earning paper profits on the company stock they hold in their $2.1 billion defined contribution plan, said Jorgen H. Heidemann, senior vice president of Benefit Capital.
"I've told quite a few employees not to worry too much about the merger. They've made a lot of money in company stock in the last couple days," Mr. Heidemann said.
About 31% of the assets of the defined contribution plan were invested in Union Carbide stock as of Sept. 30. The stock was trading around $49 prior to the announcement of the merger; it closed at almost $63 Aug. 5.
For Dow employees, the deal so far is a wash. The stock price closed around $125 Aug. 5, close to what it was trading at the day before the deal was announced. Dow's plan participants have almost 79% of their defined contribution assets in company stock.
At Dow, 28 external money managers oversee its defined benefit plan. The two sets of plans don't have any money managers in common; both, however, use Chase Manhattan Corp. New York, as master trustee/global custodian.
Union Carbide's defined contribution record keeping is internal; Dow uses PricewaterhouseCoopers Kwasha Lipton, Fort Lee, N.J.
Dow's defined benefit asset allocation as of June 30, 1998, was 43.2% domestic equity, 19.2% foreign equity, 37.5% domestic fixed income and 0.1% cash.
Union Carbide's asset mix is 43% domestic equities, 50.6% domestic fixed income, 1.4% cash, 3% private equity, 1.2% real estate, 0.4% mortgages and 0.4% annuities.
Union Carbide's defined contribution asset mix, as of Sept. 30, was 30.9% company stock, 22.6% other equities, 46.4% guaranteed investment contracts and 0.1% fixed income.
As of June 30, 1998, Dow's 401(k) plan asset allocation was 78.8% company stock, 15.4% domestic equities, 1.8% fixed income and 4% cash.
