It's one thing for a company to be hit by an economic storm when it has a bolt-on acquisition or a modest-size divestiture in the works. It's quite another when the company is carrying out a pair of huge transactions that together represent a major strategic change.
The latter is the case for Dow Chemical Co., which must execute a challenging two-step maneuver amid a credit crunch of historic proportions and a sharp slowdown in demand for chemicals.
Step one is to spin major commodity businesses (polyethylene and polypropylene) into a joint venture with Kuwait's Petrochemical Industries Co., already its partner in several other such ventures, in a deal that was announced a year ago and valued at around $19 billion. Step two is to
complete the acquisition of specialty chemical company Rohm and Haas Co. in an $18.8 billion deal announced in July. Dow's proceeds from the first deal are an important resource for the second.
The news Monday is that step one is nearly accomplished -- but on somewhat different terms than Dow had envisioned before the weather turned. The JV, now valued at $17.4 billion,
is signed and set to start up by Jan. 1, 2009. Dow will free up $9 billion in cash, not $9.5 billion as originally envisioned. And Dow and PIC will also fold two existing 50-50 JVs into the new one, known as K-Dow Petrochemicals.
Dow CEO Andrew Liveris, quoted by Bloomberg, called the JV a "
phenomenal deal in very miserable economic conditions." On to the Rohm and Haas closing, which Liveris expects in the first quarter of 2009. -
Kenneth Klee
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