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January 12, 2009 01:00 AM

JV failure prompts Dow to seek new partner

Frank Esposito
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    MIDLAND, Mich. (Jan. 12, 2009) — Dow Chemical Co. has other partners lined up to replace a Kuwaiti firm as Dow's partner in a commodity plastics joint venture, officials said last week.

    “Prior to signing the definitive agreement with our Kuwaiti partners about the K-Dow joint venture, we had other options and partners to consider,” Dow Chairman and Chief Executive Officer Andrew Liveris said in a Jan. 6 news release. “Some of these discussions were active as recently as November, and we already have been contacted by other interested parties and have begun discussions.”

    Liveris did not identify any potential partners. Petrochemicals Industries Co., a state-owned Kuwaiti firm, backed out of its deal with Midland, Mich.-based Dow on Dec. 28. The K-Dow joint venture was to include Dow's polyethylene, polypropylene and polycarbonate businesses, and Dow was expected to use $7.5 billion in proceeds from the deal to finance its acquisition of Rohm and Haas Co., a Philadelphia-based specialty chemicals firm.

    European regulators approved the $15.3 billion Dow/Rohm and Haas deal Jan. 9, but Dow has declined official comment on the proposed deal. Liveris told the Wall Street Journal on Jan. 7 that Dow officials “don't believe it's an appropriate period of time to comment on the Rohm and Haas deal other than to say it's on strategy [and] it's in the regulatory approval process and leave it there.”

    Dow spokesman David Winder declined further comment Jan. 9, citing the ongoing regulatory process. Officials with Rohm and Haas have said the formation of K-Dow was not “a closing condition” of the acquisition.

    Separately, Dow is seeking to recoup a $2.5 billion breakup fee from PIC for the K-Dow pullout. “We believe we have maximum rights to sue and we have maximum damages to seek,” Liveris told the Journal. In reply, Kuwait commerce and industry minister Ahmad Baqer told a Kuwaiti newspaper Jan. 7 that Kuwait “has undertaken all necessary measures to counter [Dow's] case.”

    Billionaire U.S. investor Warren Buffet also is in the mix, having invested $3 billion in Dow last year when the firm was in pursuit of Rohm and Haas.

    A pair of former Dow executives contacted by Plastics News said that although the Rohm and Haas deal may close in 2009, it may take Dow a while longer to find a commodity plastics partner.

    “I think the [Rohm and Haas] deal will go through because Dow still has the capability to borrow enough, but I think [Dow] will try to negotiate a lower price,” one of the former executives said. “That's what the Kuwaitis did to Dow before the K-Dow deal fell through.”

    Dow “will go to Rohm and Haas and say 'Look, we're men of our word, but we can't take the premium we were going to pay any more,” the second former executive said.

    The first former executive added that company pride also may convince Dow to stick with the Rohm and Haas deal.

    “This is a way for Liveris to make his true mark,” he said. “But Dow's been trying to become a specialty chemicals company for 25 years.”

    Both former executives said most potential financial partners no longer can access the funding needed to join Dow in a commodity plastics JV, while competitors such as LyondellBasell and Ineos Group are struggling with their own financial issues. Both former executives — and other market watchers — said they wouldn't be surprised if Saudi Basic Industries Corp. (Sabic) emerged as a potential Dow partner in late 2009 or early 2010. Sabic bought General Elecric's GE Plastics unit in 2007 and has an extensive polyolefins business in Asia and Europe.

    Global demand and prices for most commodity plastics plummeted worldwide in the second half of 2008. “I'm not sure who would get into that [commodity] plastics business right now,” one of the former Dow executives said.

    The same source said Dow may get less than $1 billion of the $2.5 billion its seeking from Kuwait, and even that money might arrive too late to help the firm finance the Rohm and Haas deal.

    December was a rough month for Dow. On Dec. 8, the firm announced it would shed 5,000 full-time jobs and 6,000 contractor positions, along with closing 20 plants and temporarily idling 180 more. Global demand softness and a deepening global recession prompted the moves, officials said.

    Dow's nine-month sales for 2008 rose 19 percent vs. the year-ago period to $46.6 billion, but the firm's profit tumbled 13 percent to $2.1 billion. Basic Plastics — including PE and PP — accounted for 23 percent of Dow's nine-month sales and 34 percent of its nine-month pretax profit.

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