Dow rolls PE, PP, and PC into JV with Kuwaiti firm

Touting the move as part of its strategic shift to transfer commodity units into joint ventures and focus efforts on performance products, Dow Chemical Co. (Midland, MI) announced plans to create a 50/50 joint-venture with Kuwait Petroleum Corp.’s (KPC; Kuwait City) Petrochemical Industries Company (PIC) to manufacture and market polyethylene (PE), ethylenamines, ethanolamines, polypropylene (PP), and polycarbonate (PC). At the start of 2007, Dow Chairman and CEO Andrew Liveris announced the company’s intention to restructure its commodity products (see e-Weekly Feb. 7, 2007 for an initial report).

The joint venture will be headquartered in the U.S., employing more than 5000 globally and generating expected, pro forma revenues of $11 billion. The new company will be created by Dow selling PIC a 50% interest in the aforementioned business assets. PIC and Dow will then place their shares of those assets into the joint venture, with each party taking a 50% equity stake. PIC will pay Dow approximately $9.5 billion (pre-tax) for its portion of the businesses.

In a presentation announcing the agreement, Geoffery E. Merszei, Dow executive VP and CFO, said the two companies signed a memorandum of understanding this month, with the deal estimated to close by the end of 2008. In 2006, Merszei said the businesses in the JV generated $10.8 billion in revenue, with earnings of $2.5 billion.

Lacking the advantaged feedstocks of petrochemical competitors integrated to the well, Dow’s commodity products, which operate with thin margins to start, have been hammered by rising oil and gas costs. In 2006 comments to investors, Merszei called raw-material price pressure “unyielding,” and said feedstock and energy costs were $1.6 billion higher in the first half of 2006 than the previous year. He said that marked the 16th consecutive quarter of year-over-year cost increases, with the last nine eclipsing 18% (see MPW October 2006 Economy & Markets for initial report).—[email protected]