The good news is Kuwait has nothing t do with it..
Dow Chemical Co. (DOW) the largest U.S. chemical maker, is in talks to revive a basic-plastics joint venture with Kuwait that the country’s Petrochemicals Industries Co. abandoned last year. “We are definitely in discussions,” Chief Executive Officer Andrew Liveris said today in a telephone interview. “I want to downplay expectations because of what happened last time.”
Kuwait’s cancellation of the K-Dow Petrochemical venture in December deprived Dow of $9 billion it planned to use for its acquisition of Rohm & Haas Co. That left Liveris seeking to amend financing and obtain new terms for the $16.5 billion purchase, which was agreed upon March 9.
Dow, based in Midland, Michigan, also is talking with two “very interested” parties about buying a stake in the basic- plastics unit, Liveris said. The likelihood of reaching a new deal with Kuwait is “low,” he said. “I have learned that unless the money is in the bank, OK, I am not going to promise it,” Liveris said.
Bidding War
Liveris said he didn’t include a clause in the Rohm & Haas merger agreement that would have let Dow out of the deal if the Kuwait venture failed because no one anticipated the financial collapse that occurred after the agreement was signed July 10. Dow won the Rohm & Haas auction with a $78 a share bid, topping BASF AG’s $75 offer.
“Even if you wanted a financing out, you wouldn’t have won Rohm & Haas’s bid because BASF would have won it,” Liveris said. Kuwait canceled the K-Dow venture on Dec. 28 after opposition lawmakers pressured the government to scrap the deal, which they said was overvalued amid falling oil prices. The cancellation prompted Standard & Poor’s and Moody’s Investors Service to cut Dow’s credit ratings.
Dow plans to sell $4 billion of assets this year as part of a plan to repay as much as $10 billion in short-term loans for the Rohm & Haas purchase, which closes April 1, and to maintain investment-grade credit ratings. A deal to sell Rohm & Haas’s Morton Salt unit, the biggest U.S. salt producer, for at least $1.5 billion will be announced this month, Liveris said.
“We are moving on that one very fast,” Liveris said. “Given what we achieved in five days recently, I would consider it almost wimpy of us not to achieve it in 20 days.”
‘Serious Bidders’
Dow will narrow six “serious bidders” for Morton Salt to three, possibly selecting one for exclusive negotiations, by this weekend, he said.
The value of Dow AgroSciences, which makes pesticides and develops genetically modified seeds, isn’t appreciated by investors, Liveris said. The unit “clearly” is worth more than the $5 billion to $8 billion that some analysts have estimated, he said. The company doesn’t immediately plan to sell the business, Liveris told investors on a March 9 conference call.
Asset sales are part of efforts to improve Dow’s balance sheet so another dividend cut “should never be necessary,” Liveris said. Dow slashed its dividend 64 percent on Feb. 12, the first reduction in company history, to save $1 billion a year, after Liveris promised not to cut the payments.
“After the events of the last three months, it would be terrible of me to say never again,” Liveris said.
So, where are we? There is some math here that does not quite add up and for shareholders that seems to be a good thing. Dow in its presentation yesterday said it would sell the $4.3 billion in assets to pay off the credit line in one year. If the get $1.5 for Morton Salt, that leaves $2.8 billion in asset sales. The commodity business that was originally valued at $9 billion (Dow’s 1/2) is worth less in this environment, but not almost 70% less.
I am saying here than Liveris has got burned big time over the past year. One would expect anyone who has that happen to swinging the pendulum to the other side and become so conservative that any estimate given is a real low ball figure.
On another note, analysts estimate the value of Dow Ag at $5 billion to $8 billion. Five billion dollars equals the current market cap of the whole company. Essentially buyers today pay for Dow Ag and get the specialty chemical business, the commodity chemical business and the rest of the company for free. Not a bad deal.
Disclosure (“none” means no position):Long DOW
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