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K-Dow cuts value by more than 8%
The value of K-Dow Petrochemicals, the planned joint-venture between Dow Chemical and Kuwait Petroleum Corp, has been cut by more than 8 per cent to about $17.4 billion (Dh63.92 billion) in the light of a sharp slowdown in global demand.
- Reuters
- Published: 23:25 December 2, 2008
New York/Kuwait City: The value of K-Dow Petrochemicals, the planned joint-venture between Dow Chemical and Kuwait Petroleum Corp, has been cut by more than 8 per cent to about $17.4 billion (Dh63.92 billion) in the light of a sharp slowdown in global demand.
Dow and other chemical makers around the globe face one of the worst slumps ever in chemical demand, with recession in most developed countries and a sharp slowdown in emerging economies that have been the main drivers of revenue growth for the sector in recent quarters.
Dow, the largest US chemical maker, is contributing a portion of its assets to the joint venture, which will make chemicals used in products ranging from plastic bottles and compact disks to computers and agricultural compounds.
The original value of the deal was about $19 billion.
The total enterprise value of the Dow businesses going into K-Dow is now about $17.4 billion. This equates to $8.72 billion for each shareholder. The final proceeds of the transaction include usual adjustments of $1.2 billion, related to working capital and net debt, the companies said on Monday.
Midland, Michigan-based Dow will receive $9 billion in pretax proceeds for its assets and will have a 50 per cent stake in the joint venture with KPC's Petrochemical Industries Co (PIC). Dow initially expected proceeds of $9.5 billion from the deal, when it was announced a year ago.
PIC will pay Dow $7.5 billion for its stake in the venture, while K-Dow itself will pay both Dow and PIC a special cash distribution of $1.5 billion each, once the deal has closed, the companies said in a joint statement.
Current deal structure
Based on the current deal structure, PIC will make a net payment of $6 billion, after adjusting for the special cash distribution from K-Dow.
K-Dow is currently marketing about $4 billion of debt, $3 billion of this will be used to pay the special cash distribution to both companies. Analysts noted that the debt burden that K-Dow will have to bear from inception will be reduced by the fact that Dow and PIC are wrapping two of their other joint ventures under the K-Dow umbrella.
MEGlobal, which makes ethylene glycol and Equi-polymers and is a supplier of PET resins, will be made a part of K-Dow. This will raise the expected annual sales from K-Dow to $15 billion, from an earlier estimate of $11 billion.
Dow and KPC said last week they were still in talks on the deal after Kuwait's state news agency, Kuna, quoted KPC chief executive Sa'ad Al Shuwaib as saying, the agreement was under review due to the global financial crisis.
The two companies said the new company will begin operations no later than January 1 and market petrochemicals and plastics such as polyethylene, polypropylene and polycarbonate.
The deal, part of Dow's strategy to reduce its exposure to the cyclical nature of the commodity chemicals business, was announced in December 2007.
The K-Dow deal has received regulatory approvals from in the US and Europe, but it remains subject to customary closing conditions.
The deal with KPC is especially significant for Dow, as it plans to use the proceeds from it to repay a large part of the $13 billion in debt it will shoulder once it acquires Rohm and Haas in early 2009.
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