Dow Strikes Back

DOW CHEMICAL is "pursuing legal options" over the Kuwaiti government's decision to scuttle a global petrochemical joint venture. And with analysts questioning whether the company can or should continue with its purchase of Rohm and Haas without the $9 billion the Kuwaiti deal was to bring in, Dow is trying to reassure investors that it has a backup plan.

Late last month, Kuwait's Supreme Petroleum Council nixed the purchase of half of Dow's commodity petrochemical and plastics business by Petrochemical Industries Co. (PIC) of Kuwait. "We were shocked by the news," Dow's CEO, Andrew N. Liveris, said in a statement last week. "This was completely unexpected given the approvals already received and the behavior, actions, and words from our partners."

Suing PIC puts Dow in an awkward position because the companies already have chemical joint ventures with billions of dollars in annual sales. "Pursuing legal options is not a decision we take lightly," Liveris said. "But PIC is in breach of contract."

The company also disclosed that it had been in discussions as recently as November with other potential partners for its commodity businesses. It has also been talking with interested parties in recent weeks. Dow says such an alternative, plus some other divestitures, could yield even more revenues than the PIC deal.

Under Liveris' leadership, Dow has been pursuing what it calls an "asset-light" strategy: forming joint ventures for commodity businesses, preferably with partners that have access to cheap feedstocks, while expanding in specialty chemicals. The keystone to the strategy was to form the K-Dow joint venture with PIC and use the proceeds to help pay for its $18.8 billion purchase of specialty chemical giant Rohm and Haas.

Without the Kuwaiti deal, analysts say, Dow ought to renegotiate with Rohm and Haas or walk away. After the K-Dow deal failed, Standard & Poor's lowered Dow's credit rating from A– to BBB, only a notch above "junk bond" status. "Dow's financial profile will be stretched to an aggressive posture if it closes the Rohm and Haas transaction as expected," wrote S&P analyst Kyle Loughlin in a recent report.

Compounding Dow's troubles is that starting last week, the price of the Rohm and Haas deal climbs by $100 million every month it is not completed.