Issue Date: December 17, 2007
Dow To Exit Commodity Chemicals
FOLLOWING THROUGH on its promise to reduce its exposure to cyclical chemicals businesses, Dow Chemical is selling half of its petrochemicals operations to Kuwait's Petrochemical Industries Co. (PIC) for $9.5 billion. Dow says the resulting joint venture will free it to concentrate on more technology-driven performance chemicals businesses.
The 50-50 joint venture, expected to be completed by the end of 2008, will have annual sales of about $11 billion. It will include all of Dow's polyethylene business, the largest in the world, as well as its industry-leading ethanolamines and ethyleneamines businesses. "This joint venture will be the player in the petrochemical field, make no bones about it," said Dow CEO Andrew N. Liveris in outlining the deal to analysts last week.
The partnership will also include Dow's polycarbonate and polypropylene businesses, which are modest players in their respective markets. The joint venture will own Dow's ethylene complexes in Fort Saskatchewan, Alberta; Bahia Blanca, Argentina; and Tarragona, Spain. Other ethylene crackers, such as Dow's Freeport, Texas, site, will supply the partnership with feedstocks under contract.
If successfully completed, the joint venture will continue a history of cooperation between Dow and PIC, which is owned by the state oil company Kuwait Petroleum. In 1995, Union Carbide and PIC formed the joint venture Equate with minority partners to produce ethylene, polyethylene, and ethylene glycol. Dow purchased Union Carbide in 2001 and built on this foundation by launching a similar joint venture, Equate II, which is now under construction in Kuwait.
In 2004, Dow and PIC formed the global ethylene glycol joint venture MEGlobal and the polyethylene terephthalate partnership Equipolymers. Like the planned petrochemical joint venture, these ventures were formed through PIC's purchase of a share in established Dow businesses. Taken together, all the Dow/PIC partnerships are expected to generate about $14 billion in revenues.
Kuwait Petroleum, which calls itself one of the top 10 energy and hydrocarbons companies in the world, has long had ambitions beyond its home country. "The joint venture will enable PIC to expand and diversify its international petrochemicals presence, while building on our long-standing relationship with Dow," said CEO Saad Al-Shuwaib.
One example of this ambition is a $5 billion refinery and petrochemical complex in China's Guangdong province being studied by Kuwait Petroleum and Dow, along with Chinese state oil company Sinopec. Liveris pointed to the complex as an example of the kind of project that the new company would be positioned to undertake in the future.
As for Dow, it will become a smaller company when the joint venture is formed. On the basis of 2006 figures, its annual sales will decrease from $49.1 billion to $38.3 billion. However, the company will still be the second largest chemical company in the world behind BASF.
Liveris said he wants to focus the company's remaining businesses—such as crop protection, insulation, water treatment, and advanced materials—on societal "megatrends" such as human health, energy, infrastructure and transportation, and electronics and communications.
Liveris referred to the megatrend areas as his company's "hunting grounds." And Dow will have $9.5 billion of cash from PIC to continue what it calls its transformation. Liveris adds, "We are not averse to any deal, no matter what the size."
On that point, one stock analyst, BB&T Capital Markets' Frank Mitsch, asked Liveris whether Dow was already planning a large acquisition. "The transformation agenda will require acquisitions," the CEO responded. "Stay tuned," he later added. "The Dow Chemical Company ain't done yet."
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