Dow Ag is not acting like a division of Dow Chemical (DOW) about to be sold……..good.
From the IBJ.com:
Dow AgroSciences has signed a 15-year lease that will spur construction of an 80,000-square-foot research-and-development building, to be erected adjacent to its headquarters in northwest Indianapolis. As a result, the company plans to hire dozens of additional researchers.
Dow AgroSciences’ new two-story building will be developed and owned by Indianapolis-based Browning Investments Inc., which also will be general contractor on the project. It will be in Browning’s Northwest Technology Campus.
Terms of the deal were not disclosed. The Indiana Economic Development Corp. offered Dow AgroSciences up to $2.4 million in performance-based tax credits and $120,000 in training grants based on the company’s hiring plans.
The local office of Los Angeles-based CB Richard Ellis served as leasing agent. The building was designed by Indianapolis-based BSA Lifestructures and will house laboratories for about 100 researchers—a combination of existing employees and new hires.
Groundbreaking will occur next month. Dow AgroSciences anticipates occupying the building by mid-2010.
The deal strengthens Dow AgroSciences’ local roots. Its parent, Midland, Mich.-based Dow Chemical Co., this year has been evaluating whether to divest the agricultural chemicals and biotech business. Dow Chemical is expected to announce its intentions for the business this summer.
Dow AgroSciences CEO Jerome Peribere declined to comment directly about whether a sale is off the table, saying it’s not his decision. But he went on to note that Dow Chemical’s financial position has improved since the first quarter, when the company was “fairly stressed.”
“Dow AgroSciences is clearly a strategic asset for the Dow Chemical Co. And the divesture of Dow AgroSciences would be, as [Dow Chemical CEO] Andrew Liveris has said several times, counter-strategic,” Peribere said.
“Therefore, the fact that Dow Chemical has restructured its balance sheet and is continuing to proceed with nonstrategic divestures, I would only comment this is all very good news for Dow AgroSciences.”
“We love being here,” Peribere added.
Peribere noted that Dow AgroSciences has been regularly expanding. Its headcount was less than 1,000 three years ago, he said, and now stands over 1,200.
This comes on the heals of a recent acquisition, and comments from the company that seemed to back off their original statements about it being on the block.
Perhaps this is some of the reason for the recent price run from $14 to $20 (up from $8 at its low), the confidence by the market this growth engine for Dow will remain not only part of it but a substantial contributor to earnings as we go forward.
Now of course until they actually come out ans say “Dow Ag is of the block”, anything is possible. But given recent statements and actions, one would have to think an outright sales at this point is remote.
Disclosure (“none” means no position):Long DOW
6 replies on “More Evidence Dow Ag Will Not Be Sold”
Todd, what is your estimate of Borders' intrinsic value?
Ben,
Borders is deteriorating rapidly for me. I sold 1/2 my position this week on Thursday and will sell the rest on the next run up….
My feeling is they are being left behind online/mobile esp. considering BKS recent reader announcement and their popularity of their iphone apps (more so than AMZN)…
There still is probably value there but IMO it is becoming less as I feel mobile/reader is the future…
That being said, I made a paltry 5% on the first batch I sold this week and unless something dramatic happens, expect about the same on the rest…I just see other /better opps now and aren't seeing real progress there…
Hmmm, I would assume that Ack is looking to put BGP back on the auction block as quickly as possible.
I would think as soon as credit markets loosen up a bit…i think in the last letter he said his cost basis was now around $7.
What do you think the intrinsic value/liquidation value is, like $10?
Current book value of Borders is $2.95 per share. As of May 2nd, inventory is $893 million; that inventory is largely books. Book are notorious for selling at deep discounts once they're no longer popular and are "remaindered"; more than a few retailers make their living selling remaindered books at 50-75% off the cover price.
It seems reasonable to assume that a large proportion of Borders' inventory is popular books, and that a liquidation sale would be conducted in a way that would fetch remaindered prices for them. Borders ain't General Motors, and bankruptcy court is usually slow.
Myself, I would knock 50% off the value of Border's inventory as a rough estimate of its liquidation value. A conservative appraiser would likely knock off 70-90%. Doing so makes the book value negative.
In order to make up for the 50% inventory bite, the fixed assets would have to be sold at liquidation for $446.5 million more than their book value net of depreciation.
Ben's evidently hoping that those fixed assets sell for close to their gross value. For $10 per share in liquidation value, there would have to be $600.5 million in shareholders' equity left after liquidating. Current shareholders' equity is $177.6 million. Given that inventory bite, the fixed assets would have to sell for $869.4 million more than their recorded value net of depreciation. [$600.5 million = current shareholder's equity of $177.6 million plus expected liquidation gain from fixed assets minus estimated inventory loss of $446.5 million.]
Accumulated depreciation is about $1.128 billion. For $10, given those assumptions, 77% of it would have to be captured in a liquidation sale.
I can't give an answer to Ben's question to Tom, as I don't even know what proportion of the fixed assets are in fact real estate, but that depreciation-capture rate seems pretty high given the current real-estate market. There's already a lot of liquidation properties overhanging the residential real estate market; I don't know how much is overhanging the retail end of the commerical real-estate sector, nor how much would overhang by the time Border's real estate would be sold in a liquidation sale.
That's the irony in using adjusted real-estate value as a measure of intrinsic value. Unless the company goes under in a time of general prosperity, the adjusted values are unlikely to be fetched in a liquidation.