Recent Dow Chemical Debt Offering Saves Dow Ag.

There is now no reason to sell Dow Ag unless Dow Chemical (DOW) CEO Andrew Liveris intends to commit career suicide.

From the press release (emphasis mine):

Midland, MI – August 4, 2009 – The Dow Chemical Company (NYSE: DOW) today announced that it priced a $2.75 billion underwritten public offering of debt securities, including $250 million aggregate principal amount of floating rate notes due 2011, $1.25 billion aggregate principal amount of 4.85% notes due 2012, and $1.25 billion aggregate principal amount of 5.90% notes due 2015.

Dow intends to use the net proceeds of the offering to repay borrowings under the Company’s bridge loan, and for refinancing of other outstanding indebtedness. Borrowings under the bridge loan were incurred to pay a portion of the purchase price for Dow’s acquisition of Rohm and Haas Company.

Together with previously announced asset sales totaling $3.3 billion of gross proceeds (expected to be completed by year-end), today’s capital raising efforts will enable Dow to completely retire the outstanding balance of the bridge loan facility well ahead of its end-of-year commitment.

“Once again, investor confidence in Dow’s long-term strategic direction has been underscored with the completion of yet another oversubscribed debt offering,” said Andrew N. Liveris, chairman and chief executive officer. “When combined with proceeds from the asset sales we have already announced, this offering will enable us to fully pay down our bridge loan. It is further evidence of the Company’s commitment to enhancing liquidity and financial flexibility. At the same time, this provides us with more options in how we execute future non-core divestitures in order to further de-lever our balance sheet and free up capital for ongoing investments in our advanced materials, agricultural sciences and performance portfolios.”

There is no reason to throw that last line in unless you are signaling to the world that you intend to invest heavily in these areas and there is no reason to invest heavily in an area that you intend to sell soon. Why? Any investment in Dow Ag will not bear fruit for some time (years). That is simply the nature of the business. On does not discover a new genetic trait for corn to make it more drought resistant and bring that product to market in less than 2-4 years. That being said, there would be no reason to continue to make these investment if the possibility of a sale was definitive….none.

CSFB analyst John McNulty wrote the following:

• DOW took yet another step (the 7th one since their acquisition of ROH) towards their de-leveraging goal, this time with the issuance of $2.75 billion of debt securities, and is now well ahead of their original debt reduction targets
• This debt issuance along with the roughly $2.8 billion of proceeds from all of the pending asset sales essentially eliminates all of DOW’s near-term maturities ($4.1 billion on the bridge loans and $1.9 billion of legacy DOW debt coming due) and increases the company’s financial flexibility
• DOW has dramatically improved its B/S since the ROH acquisition by reducing its risk tied to near-term maturities and now has greater financial flexibility for ongoing investments in its core business
• There are also further catalysts in DOW’s horizon including the monetizing of the old K-DOW assets and/or Styron

This news follows successful debt and equity offerings in May when Dow raised $2.25 billion in new equity and $6 billion in new long-term debt. The latter was three-times oversubscribed.

Through a combination of these capital raises and asset sales, the company will be able to repay it well ahead of its year-end target date to repay the $9.2 billion bridge loan that it had used to complete the Rohm and Haas acquisition. Dow has announced asset sales totalling $3.3 billion of gross proceeds, including the sale of Morton Salt, its stake in the Dutch refinery TRN, and its calcium chloride business to Occidental Petroleum.

In other words, no Dow Ag sale…..

Disclosure (“none” means no position):Long DOW