Monday, December 29, 2008

Dow's Plan for Growth Threatened by Scuttled Kuwait Deal

--Kuwait scuttled a multi-billion dollar JV deal with Dow C amid fears that plunging oil price make the deal unatractive --the JV would have provided Dow with the access to low cost natural gas and money to close an aquisition deal --the decision by Kuwait might call off Dow's the acquisition deal for Rohm & Hass Co By JEFFREY BALL and CHIP CUMMINS Kuwait scuttled a multibillion-dollar joint-venture deal with Dow Chemical Co. that was set to take effect Thursday, potentially complicating the chemical giant's efforts to complete a huge acquisition. Dow said Kuwaiti officials informed the company on Sunday that the Persian Gulf country is scrapping a deal under which a state-owned petroleum company was to pay Dow $7.5 billion for a 50% stake in several chemical plants. Dow intended to use that money to help finance its $15.3 billion purchase of Rohm & Haas Co., which makes coatings and electronic materials. The decision by Kuwait's top petroleum-policy council to bail out amid fears that plunging oil prices had made the deal less attractive came less than a week before the deal was to become effective. Both Dow and the Kuwaiti company, Petrochemical Industries Co., or PIC, were also planning to collect $1.5 billion apiece from the joint venture, known as K-Dow Petrochemicals. Analysts have said for some time that if the Kuwait deal was canceled, it would call into question the Rohm & Haas acquisition, which is slated to close in early 2009. But Rohm & Haas said in a statement Sunday that a deal between Dow and Kuwait "is not a closing condition" for Dow's acquisition of the company. It said Rohm & Haas "continues to work diligently towards completing the proposed transaction with Dow in early 2009." In a conference call with analysts in October, Dow said it intended to tap various sources of funding to complete the deal, including a $13 billion bridge loan, $4 billion from other investors, and proceeds from the Kuwait joint venture. Dow, based in Midland, Mich., said in a statement that it is "extremely disappointed" with Kuwait's decision and is "evaluating its options" under the agreement it had with PIC, a subsidiary of Kuwait Petroleum. A Dow spokeswoman declined to comment on how the Kuwaiti decision might affect the planned Rohm & Haas acquisition. The unraveling of the joint venture is the latest sign of how roller-coaster energy prices are whipsawing the global economy. Dow announced the Kuwaiti joint venture about a year ago. At that time, soaring energy prices were forcing the company to search farther afield for affordable supplies of natural gas, which Dow consumes in huge quantities to make its chemicals. The joint venture would have helped provide Dow access to low-cost natural gas. But energy prices have cratered since then, leading countries such as Kuwait, with vast stores of oil and natural gas, to reconsider whether now is the best time to be undertaking big deals. Kuwait's decision is a setback to Dow, which saw the joint-venture deal as crucial to improving the company's long-term profitability. For years, Dow Chief Executive Andrew Liveris has been trying to reposition the company, moving it away from producing low-margin commodity chemicals and into the higher-margin specialty chemicals business. Kuwait's state news agency, Kuna, reported Sunday that the sheikdom's top petroleum-policy council decided to cancel the deal. According to Kuna, Kuwait's Deputy Prime Minister Faisal Al-Hajji Bukhadour said the project was a casualty of the "current dramatic changes in the global economy coupled with the recent unprecedented slide of the oil prices." Earlier this month, Dow renegotiated the deal and agreed to accept a total of $9 billion, including the money it was to get from K-Dow, about $500 million less than it originally planned. Mr. Liveris said that the reduced price reflected the turmoil in the chemical industry, as the global economic slowdown slashed demand for chemical products. One week later, Dow announced major cutbacks amid the weak economy. Mr. Liveris said the cutbacks were intended partly to preserve Dow's ability to execute the Rohm & Haas acquisition. He said the company was "looking at every possible mechanism" to protect that deal. Global deal making has generated problems before. In April 2007, Dow fired two top executives, accusing them of plotting to sell the company without authorization. The two had talked to investors in Oman, among others, about arranging a buyout, according to people familiar with the matter.

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