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Business

Takeover Buzz About Dow Chemical

March 5, 2007 | A version of this story appeared in Volume 85, Issue 10

A report that Dow Chemical will receive a buyout bid from a consortium of private equity companies marks the third time in three months that the firm is the subject of rumors regarding its future. In December, there was speculation that Dow would acquire Georgia Gulf. Then in late January, there was a fleeting rumor that Dow itself was a takeover target. The latest flap began when the Sunday Express, a British tabloid, reported that a group of private equity firms was putting together a bid for the company worth $54 billion, or about $60 per share. On Monday, Feb. 26, the first trading day after the story appeared, Dow stock shot up almost 9% to a high of $47.26 per share. It then settled back to close the day at $44.76 per share, up 3.0%. Don Carson, research analyst at Merrill Lynch, says a sum-of-the-parts analysis of Dow for 2007 and 2008 suggests an average value of $45 to $50 per share. At $60, he says, "a leveraged buyer would be making a bet that the commodity chemical cycle will last longer than the current consensus expectation." Therefore, if the rumor is true, the buyer had better have a long-term view.

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