Friday January 23, 2009
Navivest

On July 10, 2008, Dow (DOW), announced that it had reached a definitive agreement with Rohm and Haas (ROH), under which Dow will acquire all outstanding shares of Rohm and Haas common stock for $78 per share in cash, in an $18.8 billion deal.

That was six months ago, and in that time, as so often happens whenever a merger/acquisition deal is announced, there have been questions as to whether the deal will get done.

Plaguing this deal, was news on December 29, that a planned 50-50 joint venture deal between Dow and Kuwaiti state-owned Petrochemical Industries Company that would have created the leading global supplier of petrochemicals and plastics, had been cancelled at the behest of the Kuwaiti government.

The failure of that deal, which, originally, would have had Dow receive an infusion of cash from Petrochemical Industries Company, was seen as dealing

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Global Investment House, Kuwaits biggest institutional investor, defaulted on a $200m loan and had appointed HSBC to renegotiate its debts.Rumours were that the Kuwaiti government would bail them out but that appears not to have happened. br /br /Fitch immediately cut its rating to C. and Standard Poor's cut the group's rating to "speculative default", both a far cry from last weeks investment grade rating.br /br /The biggest creditior is German investment bank WestLB

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

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The Kuwaiti decision to refer the Petrochemical Industries - Dow Chemical joint venture to the Fatwa and Legislation Department threatens its cancellation. The project has become a micocosm of Kuwaiti politics. There is serious friction between the parliament and the cabinet. At the same time, the political and economic outlook for Kuwait is weak. There is disappointment in Emir Sabah's failed efforts to implement reforms. br /br /As far as the Petrochemical Industries - Dow Chemical joint venture goes, the whole Kuwaiti business environment is concerned about an undermining of the concept of contract sanctity. Still, the Kuwaiti government is confident that the deal will move forward, especially since it considers that all the financial concerns expressed by the parliament have been addressed.

Less than a week after its soon-to-be-merged Rohm and Haas Company (ROH) announced it was cutting over 900 jobs, The Dow Chemical Company (DOW) this morning says it will be shedding 5000 positions from its workforce and taking 6000 contractors off its payroll, according to the AP.

The value of DOW's recently signed K-Dow Petrochemical deal -- notable for its Kuwaiti government funding and control -- has been lowered 8% from what was originally anticipated. Was it this that helped spur the latest set of massive layoffs in the state of Michigan -- a state that has already been ravaged by job cuts in the auto industry -- where Dow Chemical is based?

More likely, DOW is looking to strengthen itself ahead of a continued U.S. economic downturn, and layoffs would have happened anyway. Here's what senior chemicals industry analyst Paul Raman, CFA had to say in his latest valuation

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