DOW
Kuwaiti joint venture collapses / Declining oil revenues and credit crunch / Rohm and Haas shaky?
It’s not known whether Andrew Liveris, CEO of Dow Chemical (Midland, Michigan / USA; www.dow.com), and his managing board had any champagne left after celebrating the signing of the 50:50 joint venture agreement with Kuwait’s state-owned Petrochemical Industries Company (PIC, Sabahiya; www.pic.com.kw) in early December 2008 – see Plasteurope.com of 04.12.2008. But then no one is likely to have felt like uncorking the bubbly on New Year’s Eve. Three days after Christmas, the deal that would have created a new US-based petrochemicals and plastics producer, K-Dow, collapsed – and with it an anchor of the US chemical group’s “asset light” strategy.
In a statement on 29 December, Dow said it had been “verbally informed” by PIC of the decision by the Kuwait Supreme Petroleum Council (SPC) to reverse its prior approval and scuttle plans for the new firm due to start up on 1 January 2009. The US group said it was “extremely disappointed” and was “evaluating options” while awaiting written notification. At the same time, management stressed that it “remains committed to its Middle East Strategy.”
While most commentators agreed that the cancellation reflected Kuwait’s declining oil revenues and the financial crisis, others pointed to squabbles between the country’s government and cabinet over the Dow plan and other, unrelated, matters. News reports from Kuwait said the cabinet felt that current “global upheaval” could present “unpredictable consequences to any global firm” and that the Dow jv would represent an “unacceptably high risk.”
Not only was K-Dow, which would have had an enterprise value of USD 17.4 bn, key to Dow’s strategy to shift its core assets towards less cyclical businesses. A major chunk of the cash intake from the arrangement had been earmarked for the financing of the company’s planned takeover of speciality chemicals producer Rohm and Haas (see Plasteurope.com of 15.07.2008). This deal was foreseen to be financed in part with a USD 1 bn capital injection from Kuwait Investment Authority, which also was to back K-Dow.
Some analysts have expressed doubt as to whether Dow will be able to obtain the necessary long-term bridge financing – agreed with 16 different lenders – for Rohm and Haas if Kuwaiti backing is withdrawn. If it decides to back away from the acquisition, it could face a USD 750 break-up fee.
The company potentially stands to receive about USD 2 bn from PIC for the cancellation of K-Dow; however, US media say there is doubt that Kuwait will be obliged to pay, as it withdrew before 1 January 2009. Analyst scenarios see the chemical major seeking to renegotiate the Rohm and Haas acquisition for USD 78 per share. Since the plan was announced, that company’s share price has dipped below USD 70 per share.
In a statement on 29 December, Dow said it had been “verbally informed” by PIC of the decision by the Kuwait Supreme Petroleum Council (SPC) to reverse its prior approval and scuttle plans for the new firm due to start up on 1 January 2009. The US group said it was “extremely disappointed” and was “evaluating options” while awaiting written notification. At the same time, management stressed that it “remains committed to its Middle East Strategy.”
While most commentators agreed that the cancellation reflected Kuwait’s declining oil revenues and the financial crisis, others pointed to squabbles between the country’s government and cabinet over the Dow plan and other, unrelated, matters. News reports from Kuwait said the cabinet felt that current “global upheaval” could present “unpredictable consequences to any global firm” and that the Dow jv would represent an “unacceptably high risk.”
Not only was K-Dow, which would have had an enterprise value of USD 17.4 bn, key to Dow’s strategy to shift its core assets towards less cyclical businesses. A major chunk of the cash intake from the arrangement had been earmarked for the financing of the company’s planned takeover of speciality chemicals producer Rohm and Haas (see Plasteurope.com of 15.07.2008). This deal was foreseen to be financed in part with a USD 1 bn capital injection from Kuwait Investment Authority, which also was to back K-Dow.
Some analysts have expressed doubt as to whether Dow will be able to obtain the necessary long-term bridge financing – agreed with 16 different lenders – for Rohm and Haas if Kuwaiti backing is withdrawn. If it decides to back away from the acquisition, it could face a USD 750 break-up fee.
The company potentially stands to receive about USD 2 bn from PIC for the cancellation of K-Dow; however, US media say there is doubt that Kuwait will be obliged to pay, as it withdrew before 1 January 2009. Analyst scenarios see the chemical major seeking to renegotiate the Rohm and Haas acquisition for USD 78 per share. Since the plan was announced, that company’s share price has dipped below USD 70 per share.
05.01.2009 Plasteurope.com [212509]
Published on 05.01.2009
German version of this article...