Less than one year after announcing a memorandum of understanding, Dow Chemical and Petrochemical Industries Co. of Kuwait (PIC) have consummated their 50:50 joint venture, to be called K-Dow Petrochemicals, with the new company to begin formal operations on Jan. 1. In a teleconference announcing the deal, Andrew Liveris, Dow’s chairman and CEO, also made reference to the widening global recession, saying “no-one anticipated the global melt-down”, which led Dow and PIC to “revisit the economics of the deal.” Under the new terms, the total enterprise value for the transaction is approximately $17.4 billion, representing a multiple of 7.1 on the 2006 EBITDA for the businesses that will create K-Dow, down from the 7.75 multiple discussed in December 2007. Liveris said that ultimately Dow now expects to yield gross cash proceeds of approximately $9 billion, instead of $9.5 billion.
Liveris said the formation of K-Dow is in line with its plans to strengthen its Basic Plastics business, with the $9 billion in pre-tax cash generated earmarked for its Performance Plastics business. “In my view, 50% of the earnings of [K-Dow] will be worth more to Dow than 100% of what these businesses would create if they stayed a part of Dow.” Liveris also referenced the July acquisition of Rohm and Haas, saying the moves “significantly move the needle on our portfolio towards performance products and advanced materials.”
Polymers and polymer technologies to be marketed include polyethylene (PE), polypropylene (PP), polyethylene terephthalate (PET), and polycarbonate (PC), in addition chemicals ethylene, propylene, ethylene glycol, and various amines. The addition of ethylene glycol and PET to the new company was announced at the deal signing, when Dow and PIC rolled existing joint ventures MEGlobal and Equipolymers into K-Dow. Andrew Liveris, Dow’s chairman and CEO, said K-Dow will have estimated sales of $11 billion, with MEGlobal and Equipolymers bringing an additional $4 billion in annual revenue.