We said to keep an eye on Dow and that advice hasn’t changed. With one activist out there in public (Loeb), the possibility of another lurking, and a little over a week until the window for director nominations opens, this could all move rather quickly.
The reason is the very limited amount of room available to Dow’s chief executive. He is no pantomime villain – that would be to have Andrew Liveris backwards. But shareholder dissatisfaction is palpable and weighty, while it will be hard to avoid the request to appoint outside advisors to consider a split from Dan Loeb (who we understand has a more than $1bn stake). Read more
Well, well — it turns out the long-expected activist in Dow Chemical stock is poison pen wielder Dan Loeb.
Third Point, his $14bn hedge fund, has disclosed that Dow is its largest position by dollar value, and made its case by open letter:
Question: what is the difference between these three large companies: Air Products, DuPont and Dow Chemical?
Answer: Dow Chemical is not subject to a public activist campaign, yet… Read more
Petronas is in talks with several oil majors including Shell and Exxon Mobil to develop petrochemical plants within its $20bn refinery complex in southern Malaysia, Reuters reports, citing two sources with direct knowledge of the matter. Malaysia’s national oil company is also talking to Japanese firms Itochu and Mitsubishi as well as Dow Chemical as it seeks to tap surging Asian demand and diversify its earnings, the sources said. Petronas is expected to make a decision on the partnerships by mid-2012, which signals it is quickly moving beyond the feasibility stage of the project. “Petronas is getting a lot of interest for the joint venture undertakings,” said one source, who declined to be identified as discussions are ongoing.
Dow Chemical and Saudi Arabia’s Aramco on Monday announced plans to build a $20bn petrochemical complex in the Saudi eastern industrial city of Jubail to tap into high-growth markets in Asia, the Middle East and emerging European countries, the FT reports. When completed in 2016, the joint venture, to be called Sadara Chemical, will be among the world’s largest integrated chemical facilities with a capacity to produce 3m metric tonnes of chemicals a year. Production is scheduled to start in the second half of 2015. The petrochemicals facility will produce revenue of about $10bn a year after the first few years of operation and sell about 45 per cent of its products to buyers in Asia-Pacific.
US-based Dow Chemical and Japan’s Mitsui are planning to build in Brazil what they claim will be the world’s largest fully integrated biopolymer operation, using sugar cane ethanol to produce bioplastics for packaging, the FT reports. The investments are part of a push by global oil and petrochemicals majors into Brazil’s sugar cane ethanol industry in a bid to tap the country’s growing potential as an exporter of renewable fuels and bioplastics. Financial details were not disclosed but Cosan, the joint venture partner of Royal Dutch Shell in Brazil, last year invested R$1bn in a facility producing 307,000 cubic metres per year of ethanol.
Private equity firm TPG has emerged as the frontline bidder for Dow Chemical’s Styron plastics business, reports the WSJ. Dow has had the business up for auction for some months, and is expected to receive more than $1.5bn for the unit in a deal that could be announced as early as this week. Other buy-out groups that earlier expressed interest include Bain Capital and Apollo Management, adds the report.
Dow Chemical agreed Monday to complete its contentious take-over of Rohm and Haas, avoiding a potentially messy legal battle by restructuring the deal to reduce Dow’s debt. Dow agreed in July to buy its smaller chemicals rival for $78 per share, or $15.4bn in cash, before attempting to abandon the deal in January. The new agreement calls for Dow to pay for Rohm and Haas with a combination of cash and preferred equity securities.
The Kuwait Investment Authority would consider increasing its support for Dow Chemical’s disputed takeover of Rohm and Haas if the terms of the deal were changed to account for the downturn, said sources close to the deal. Dow failed to complete the $15bn deal after the collapse of a joint venture between Dow and PIC – an arm of the Kuwaiti Petroleum Corporation – that was supposed to contribute $7.5bn to help pay for the acquisition. Warren Buffett has agreed to contribute $3bn and KIA was to have added $1bn. KIA had not approached Dow to discuss increasing its investment in the deal, Dow said. But analysts said the idea could be an elegant solution to the break-up of the Dow-PIC joint venture.
Dow Chemical on Tuesday reported a substantial quarterly loss as it stepped up its argument that its agreed $15.4bn takeover of Rohm & Haas has become unworkable. Dow decided not to close the takeover as scheduled last month as its targeted Kuwaiti joint venture, slated to generate $9bn to help pay for the acquisition, fell apart. Rohm and Haas has sued to force Dow to complete the deal. Dow said Tuesday that under the circumstances, forcing a merger would “cause irreparable harm” to both sides. Lex concludes that Dow’s CEO Andrew Liveris has some grim choices to make.
This CDS report was written by Markit’s Gavan Nolan
European credit indices tightened today, tracking a strong performance from equities. The Markit iTraxx Europe index was trading around 160bp, over 5bp tighter than Monday’s close. The broader market, however, was directionless, with widening credits marginally outnumbering names that tightened. Earnings provided the main point of focus. Vodafone stood out after it issued an upbeat trading statement. The UK telecoms group said third-quarter revenue rose 14.3% in the third-quarter, mainly as a result of exchange rate translation. Sterling’s weakness has benefited companies with overseas operations, a trend that is likely to continue.BP, another behemoth in the UK corporate market, announced less impressive results. The oil producer’s headline figures showed little sign of deterioration. The company posted $25.6 billion for 2008, a record and a 39% increase from the previous year. But the firm’s spreads widened after the effects of a sharp fall in the price of oil were felt in the fourth-quarter. BP warned that it needed an oil price of $50-$60 a barrel to cover its capital expenditure and dividends from cash flow. Crude is currently trading around $40 a barrel. That said, BP is one of the strongest credits in Europe and is likely to remain so given its low leverage. Read more
Dow Chemical on Tuesday said it was considering breaking one of the longest streaks in US corporate history of consistent dividends by making its first cut since 1912. In a reversal of its pledge not to cut its $1.6bn-a-year dividend, Dow said it was prepared to consider reducing the pay-out to help pay for the $15bn takeover of US rival Rohm & Haas. The news came as it emerged that Saudi Aramco, the kingdom’s national oil group, was one of the companies talking to Dow about a joint venture for its plastics business.
Dow Chemical’s planned $15bn takeover of Rohm and Haas, its US rival, was in jeopardy after the group said Monday it lacked funds to close the deal, triggering an immediate lawsuit from its target. Rohm and Haas, a large speciality chemicals producer, asked a Delaware court to enforce the transaction at the original price of $78 per share. In the lawsuit, the company accused Andrew Liveris, Dow’s chief executive, of “improperly” asking the Federal Trade Commission, the US antitrust regulator, to delay its clearance of the deal in order to buy more time. Dow rejected the allegation and said the discussions were “completely consistent” with its duty to gain approval for the deal. The FTC cleared the takeover on Friday, forcing Dow to complete the deal, which also includes $3.7bn of Rohm and Haas’s debt, within two business days.
This CDS report was written by Markit’s Gavan Nolan
European credit indices tightened today, helped by positive sentiment in the financial sector. Barclays, the subject of intense speculation last week, made an effort to silence the rumour mill today. The bank wrote an open letter to investors outlining its financial position. Barclays will record an £8 billion writedown on credit positions when it reports on February 9 – a week ahead of schedule. While the writedown can hardly be regarded as good news, it was not unexpected and investors were focused on whether this would affect its capital position. Barclays was clear in that its strong performance over the year means it will not be seeking further capital. It has, however, initiated discussions with the government about participation in the asset insurance scheme.
Dutch bank ING was another to announce significant writedowns. The bank posted a EUR3.3 billion loss, primarily as a result of asset impairments totalling about EUR5 billion. But its spreads rallied after the government came to its rescue again. The Dutch government will take on the bulk of the risk from ING’s Alt-A US RMBS portfolio, thereby improving its risk profile. Read more
Dow Chemical is prepared to miss next week’s deadline to clinch the $15bn takeover of Rohm & Haas in an effort to raise enough cash to complete the deal without taking on too much debt. Dow announced Tuesday it was suing Kuwait’s state-owned oil company for its surprise decision to pull out of a joint venture for the US company’s plastics business 10 days ago. Dow planned to use the $9bn it would earn from the joint venture to repay part of a $13bn bridge loan and close the Rohm & Haas deal – which requires payment of $100m more for every month of delay in closing the transaction.
Plastic might be forever; but not the companies that help make it, notes Lex. Two of Europe’s biggest chemical companies, LyondellBasell and Ineos, are struggling under huge debts. Meanwhile, Dow Chemical, the top US chemicals group, just had a $17.4bn Middle East joint venture scuppered by Kuwait. Chemicals makers face a horrible chain reaction: The first step is a collapse in demand for the chemicals used in plastics for products that nobody is now buying. The second problem is structural. The final problem is leverage. Germany’s BASF has little. But LyondellBasell is in trouble and Dow’s leverage ratios look high after the collapse of the Kuwaiti deal.
The changing face of global finance came into stark relief yesterday as Dow Chemical tapped Warren Buffett and Kuwait’s SWF to help pay for its $18.8bn takeover of Rohm & Haas. Buffett is set to become the single largest shareholder in the enlarged group. The participation of Buffett’s Berkshire Hathaway, which will provide $3bn, and the Kuwait Investment Authority, which will invest $1bn in the Dow deal, underlines the instrumental role of cash-rich investors during the current crisis in debt and equity markets. The Haas family, which controlled 33% of R&H, are getting out while the getting is good, says Lex, as it argues that a $78 per share offer at a premium of 74% on Wednesday’s close, could not be turned down.
The spectre of inflation returned to haunt the global economy on Tuesday as companies ranging from Dow Chemical to South Korea’s Posco unveiled sharp price rises to combat the soaring cost of energy and raw materials. The moves by Dow, the biggest US chemical group, and Posco, the world’s fourth largest steelmaker, came as Charles Holliday, chief executive of the chemical giant DuPont, warned of rising inflationary pressures in the corporate sector. The general price pressure was exacerbated when miner BHP Billiton indicated it could surpass the 96.5% record iron ore price increase announced by Rio Tinto on Monday and raise prices more than 100% for steelmakers.
Dow Chemical is to inject its low-growth plastics business into an $11bn joint venture with Kuwait’s state oil company in another sign of the deepening relationship between cash-rich Middle Eastern investors and struggling western companies. The deal announced Thursday ends Dow’s two-year search for a partner for its commodity chemicals business, which has been dogged by high oil prices and rising competition from emerging markets rivals. Under the deal, Kuwait Petroleum Corporation will pay $9.5bn for a 50% stake in the venture, the biggest overseas investment by a Kuwaiti company. Andrew Liveris, Dow’s chief executive, said the funds would give the company additional firepower for its plans to buy companies with faster-growing speciality chemicals assets. More background to the deal here, and a video briefing from the FT’s US business editor.
Dow Chemical, the biggest US chemical manufacturer, is to cut 1,000 jobs, close plants across the globe and take a charge of up to $600m in a radical restructuring that could pave the way for large deals aimed at reducing its reliance on commodity chemicals. The measures underline the plight of US industrial groups, which have been squeezed by rising oil and import prices and a slowing economy. Dow’s decision to close factories in the US, Brazil and France as well as exiting a business producing sealers for carmakers will cut its 43,000-strong workforce by more than 2%. Writedown and severance costs will lead to a charge of $500m-$600m that will significantly reduce Dow’s reported earnings in the last quarter. The announcement sent Dow shares down by just over 1% in New York to $41.12.
Akzo Nobel is expected to make a formal offer for ICI by the end of this week, pending completion of due diligence. The Dutch conglomerate gained access to ICI’s books over the weekend after raising its indicative bid for the UK chemicals company by about 3 per cent to about £8.1bn. Akzo increased its base offer after tying up with Henkel, the German consumer goods company. But some analysts believe Akzo could face shareholder opposition over the high price of its bid. Other bidders may also emerge including Dow Chemical, which has shown interest in ICI. Lombard says even though Akzo has not “stretched itself” thanks to Henkel, ICI is right to throw in the towel now in the absence of competing offers.
Not everyone gets a summer holiday, notes Deal Journal. Least of all M&A bankers.
Dealogic’s figures show that companies and private equity firms struck $544bn of deals in July, which, in spite of the on-going bad news flow from subprime lending, ensuing volatility and tremors in the credit markets, is more than double the July 2006 level. Read more
Akzo Nobel, the Dutch chemicals company, is facing a potential shareholder rebellion over its proposed £7.8bn offer for UK rival ICI after US asset manager TPG-Axon, a key investor with 3.5 per cent of Akzo, said the price was too high. News of TPG-Axon’s dissent came as it emerged that Dow Chemical, the largest US chemical group, had hired Lazard, the investment bank, to explore a potential counter bid for ICI. However, it is understood that the chances of a counterbid by Dow, which is believed to have held brief merger talks with US rival DuPont this year, are low, partly because Akzo raised its offer for ICI on Tuesday.
Leading shareholders in ICI have backed the board’s decision to reject a £7.2bn takeover proposal from Dutch conglomerate Akzo Nobel and said any offer should be above 700p given the synergies involved. Akzo left the door open, saying while ICI was “a highly attractive addition”, it would not overpay. Akzo is likely to return with a higher offer but a second bid would have to be more attractive to shareholders to fend off potential bids from rival chemical companies including BASF, Dow Chemical and DuPont. ICI shares jumped 15.5 per cent to close at 634½p on Monday after ICI confirmed it had rejected the £7.2bn proposal. Lex says that with its existing business plan supporting a higher valuation, Akzo able – though not necessarily willing – to pay more and with other potential suitors in the wings, ICI is right to hold out.
Andrew Liveris, chief executive of Dow Chemical, has further escalated the company’s battle with two former employees, denying their claim they were sacked because of a personal vendetta and accusing them of trying to turn the affair into a “soap opera”. In a video interview with the FT, Mr Liveris reiterated that the two, Pedro Reinhard, a former director, and Romeo Kreinberg, a former top executive, were dismissed in April because they had held secret talks about a private equity bid for Dow.
Jamie Dimon, chief executive of JPMorgan, won a vote of confidence from Andrew Liveris, his counterpart at Dow Chemical, amid growing controversy over whether revelations by Mr Dimon precipitated the firing of two Dow executives. In his first comments since Dow and one of the fired employees filed lawsuits that flatly contradict each other on the content of a discussion between Mr Dimon and Mr Liveris, the Dow chief told FT he had “no qualms whatsoever on the quality and strength of a leader like Jamie Dimon.” The looming legal battle between Dow and the two fired employees, a board director, Pedro Reinhard, and Romeo Kreinberg, an executive vice-president, could hinge on what Mr Dimon told Mr Liveris at a private dinner at Dow’s Michigan headquarters on April 9.
Dow Chemical of the US and state-controlled Saudi Aramco are close to signing a deal to build a petrochemical plant worth about $20bn in the biggest foreign investment in Saudi Arabia’s energy sector. The agreement, which could be announced as early as Saturday, could help Dow, the largest chemical group in the US, to shift public attention away from the bitter legal battle with two senior employees fired for allegedly plotting a buy-out of the company. People familiar with the situation said the talks between Dow and Saudi Aramco had been going since last July and were very advanced, but warned they could still collapse.
The accusations in the Dow Chemical affair are now flying. One the one hand are the two executives – Romeo Kreinberg and Pedro Reinhard – unceremoniously dismissed for allegedly holding “unauthorised discussions with third parties about the potential acquisition of the company.” On the other, Andrew Liveris, Dow’s chief executive, who pulled the trigger on the pair. And between the two: Jamie Dimon, JPMorgan’s chief executive, unveiled on Wednesday as Mr Liveris’ “single source” for the firings, in this account of the drama in the New York Times.
Mr Kreinberg and Mr Reinhard are suing the company, claiming they have been defamed. The company is responding in kind. Read more
Jamie Dimon, the chief executive of JPMorgan, has been thrust into the spotlight in the escalating battle between Dow Chemical and two senior employees fired for allegedly plotting a buy-out of the company, according to legal documents. Two lawsuits filed on Tuesday – by Romeo Kreinberg, one of the sacked executives, and Dow – point to Mr Dimon as the person who told Andrew Liveris, Dow chief executive, of contacts between JPMorgan, potential bidders, and senior Dow employees. Dow fired Mr Kreinberg, an executive vice-president, and Pedro Reinhard, a director, last month, accusing them of holding “unauthorised discussions” with a potential bidder, believed to be a consortium led by Omani investors. Mr Kreinberg and Mr Reinhard have denied any wrong-doing and accused Mr Liveris of firing them because he considered them a threat. The two are demanding damages of $600m and $75m, respectively.
Dow Chemical abruptly fired two high-level employees on Thursday for holding “unauthorised” discussions about a purchase of the $44bn industrial group. Pedro Reinhard, a senior adviser and board member, and Romeo Kreinberg, executive vice-president in the plastics and chemicals division, had “engaged in business activity that was … a clear violation of Dow’s code of business conduct”, Dow said. One of the two fired executives later denied any wrongdoing and both suggested they had been scapegoated to curb buyout rumours, fuelled by a report in last weekend’s Sunday Express. That is certainly one way to kill a rumour, says Lex, but the case is really more about the ever-present conflicts involved in management buy-outs. For more insight into this intriguing saga, go to FT Alphaville’s “Fancy That” department.