Monday December 29, 2009
Navivest

Shares of chemical maker Dow Chemical (DOW) are off $3.82 or 20.19% after the company announced that the government of Kuwait had cancelled a planned 50-50 joint venture deal.

When the deal was first announced, Dow Chemical announced that it would receive $9.5 billion in cash from Petrochemical Industries Company, while Dow Chemical would contribute the physical assets of the joint venture. This valued the deal at $19 billion.

The new company that was to have been created under the deal, K-Dow Petrochemicals, was envisioned to be a leading global supplier of essential petrochemicals and plastics that manufactured and marketed polyethylene, ethyleneamines, ethanolamines, polypropylene and polycarbonate.

On December 1, 2008, the deal was renegotiated at the behest of the Kuwaiti government and under the new terms of the deal, Petrochemical Industries Company would contribute $7.5 billion for its 50 percent stake and $1.5 billion of that would immediately be returned as a cash distribution from the venture, thus reducing Petrochemical Industries Company’s cash contribution to $6 billion and valuing the deal at $15 billion. It was expected that the new company would start operations on January 1, 2009.

The government of Kuwait sought to renegotiate the terms of the deal after the downturn in the global economy since the deal was announced, caused a sharp decline in the demand for chemicals.

Rohm and Hass (ROH), which Dow Chemical announced that it would buy for $15.3 billion in an all-cash deal valued at $78 per ROH shares back on July 10th, 2008 are suffering collateral damage, as analysts wonder whether Dow will now proceed with the deal. Those shares are off $12.37 or 19.46% and are currently trading at $51.19.

Tags: Dow Chemical  K-Dow  Rohm and Haas