A couple of news items, the second one being significant
A small asset sale:
Arkema and The Dow Chemical Company announced jointly today that they have closed Dow’s divestiture to Arkema of its acrylic acid and esters business located at Clear Lake, Texas and its UCAR Emulsion Systems specialty latex business in North America. The transaction has a fair value consideration of U.S. $50 million(1).
On August 3, the two companies announced they entered into the agreement, through which Dow will meet FTC-required divestitures related to its acquisition of Rohm and Haas Company. The divestiture recently received final approval from the U.S. Federal Trade Commission.
Dow AgroSciences Announces Mexican Import Approval for SmartStax Grain
Key Import Approval Supports 2010 Launch
INDIANAPOLIS, Jan 25, 2010 (BUSINESS WIRE) — A major regulatory milestone has been reached for the full commercial launch of corn hybrids with SmartStax(TM).
Dow AgroSciences LLC (DOW), a wholly owned subsidiary of The Dow Chemical Company, announced today that it has received import regulatory approval from Mexico for corn grain produced from SmartStax(TM).
SmartStax is the outcome of a cross-licensing agreement and research and development collaboration between Dow AgroSciences and Monsanto. The technology is the result of best-in-class trait integration that combines each company’s industry-leading corn traits to provide growers the broadest spectrum of above- and below-ground protection against pests and weeds.
With this approval, SmartStax can be produced and planted in the United States and Canada and grain produced from SmartStax corn can now be imported to Japan, Korea, Taiwan, Mexico, Australia and New Zealand among other countries.
“This is a significant milestone for the launch of SmartStax and is aligned with our commitment to responsibly steward the introduction of novel biotech products,” said Brad Shurdut, Global Biotech Regulatory and Government Affairs Leader for Dow AgroSciences. “Mexico represents a large market for U.S. corn and this final approval ensures that growers planting SmartStax(TM) and the grain trade continue to have access to this critical market.”
Mexico is among the top importers of corn from the United States and Mexico is the largest importer of distillers dried grains, or DDGs, for livestock feed.
The multiple modes of action in SmartStax are the only proven means to reduce structured refuge and maintain long-term durability of corn trait technologies. U.S. and Canadian corn farmers who plant SmartStax will be able to substantially reduce the structured refuge from the typical 20 percent to 5 percent in Canada and the U.S. Corn Belt and from 50 percent to 20 percent in U.S. cotton growing areas.
By combining a comprehensive approach for insect and weed control with reduced above- and below-ground structured refuge, farmers who adopt SmartStax(TM) will have the opportunity to increase whole-farm corn yields. Dow AgroSciences and Monsanto (MON) plan to launch SmartStax on 3 to 4 million-plus acres in 2010. Dow AgroSciences will offer SmartStax through its seed brands which include Mycogen(R), Dairyland(TM), Renze(TM), Brodbeck(TM), Triumph(R), Pfister(R) and Hyland(TM) .
I have been saying it for a long time and will say it again. The market is giving Dow Chemical shareholder virtually no value for its ag division. At its current $32b market cap, Dow as a whole is valued at less than .6 times annual sales compared to DuPont’s (DD) 1.1 times or BASF’s (BASFY) .8. If we simply held that Dow ought to trade to a similar multiple as BASF, that still means we are getting a value of zero for Dow Ag and its 25% margins, $5B in annual sales and >10% annual growth.
A valuation like that would also mean that Dow’s market cap increase 30% from its current level. So, yes, even a 30% increase from here values the Ag division at zero.
EPS in 2010 should be roughly $1.75 with significant improvements from there. Yes, I know that gives Dow a high PE this year but for the chemicals, coming out of the down cycle this is where they trade. The difference this time for Dow is both the Ag division and Rohm & Hass. Neither were there coming out of the last cyclical downturn and the boost they will give to earnings this time was lacking previously. For this reason, the market is valuing Dow based on the last cycle, not the new configuration.
Now, the obvious risk here is that the global economy “double dips” to use a popular phrase. Given growth rates in developing nations that potential event seems more remote as each day passes. There is talk of a US dip but Dow is truly a global play as only 38% of its sales are tied directly to the US. While a US “double dip” would surely effect Dow, the overwhelming effect is had in years past today has been mitigated.
Dow is going to be highly fluid investment. One has to expect large divestitures, there is now talk of the Kuwait JV for Dow’s Basic’s business seeing life again and the possible dividend hike/ large share repurchases that would accompany either event.
Dow reports Feb 3rd and I expect Q4 will crush the $.11 consensus estimates……. stay tuned