Dow, Kuwait Petroleum to form plastics venture
Thu Dec 13, 2007 2:20pm EST
NEW YORK, Dec 13 (Reuters) - Dow Chemical Co and a unit of Kuwait Petroleum Corp said on Thursday they will form a plastics joint venture to link the Middle East company's vast energy supplies with Dow's industry-leading market reach.
KPC's Petrochemical Industries Co will pay Dow $9.5 billion to contribute five of the U.S. company's businesses worth about $19 billion to the 50-50 joint venture. Those units contributed about a quarter of Dow's 2006 revenues.
The deal was part of Dow's strategy to reduce its exposure to commodity chemicals that rely on oil and natural gas and shift into the higher margin specialty chemicals.
The joint venture will manufacture and sell chemicals used in products ranging from plastic bottles, compact disks and computers to agricultural compounds and have expected sales of $11 billion at its inception.
Under the joint venture, the partners will form a new company to house Dow's assets and split the earnings from the deal evenly.
Dow shares surged nearly 10 percent on the news before paring gains to $44.89, up 7.52 percent, on the New York Stock Exchange at mid-afternoon.
The chemical maker's shares are up 12 percent so far this year, lagging the 28 percent gains in the Dow Jones U.S. Chemicals index .DJUSCH.
The joint venture will give Dow access to OPEC member Kuwait's crude oil supplies, easing its costs for the commodity, which has flirted with $100 per barrel in recent weeks.
Liveris said the joint venture, which is expected to be finalized in late 2008, should see 6 to 8 percent revenue growth, in line with Dow's own growth in the sector.
Access to Kuwaiti energy supplies and existing growth plans will also help boost the geographic spread of the business.
"Particularly for growth, the Middle East oil and gas position Kuwait Petroleum has will serve us well as we build refinery-integrated petrochemical plays in places like China, India, generally throughout Asia and maybe in Europe," Liveris told Reuters.
The $9.5 billion that Dow will add to its coffers will also help the Midland, Michigan-based company make buys into the specialty chemicals sector.
"Frankly, we can do whatever acquisition we want to do," Liveris said. "But we're not going to buy just anything. We've got some strict strategic criteria.
The new joint venture, to be based in the United States, will make polyethylene, ethyleneamines, ethanolamines, polypropylene and polycarbonate, and employ more than than 5,000 people worldwide, the companies said.
Dow's links to the Kuwaiti company go back a decade to the EQUATE joint venture. The two companies have also joined forces through their MEGlobal and Equipolymers joint ventures in 2004.
Dow had warned that it expected stronger cost pressures in the fourth quarter because of the rising prices of energy supplies it uses to manufacture chemicals.
The new deal structure is similar to the 50-50 MEGlobal joint venture that Dow and Petrochemical Industries set up in 2004. At the time, Dow sold a 50 percent interest in its Canadian ethylene glycol assets to MEGlobal.
With the deal, Kuwait will increase its reach further down the chain of products that are derived from its oil and gas.
"By selectively investing in downstream petrochemical businesses, we are maximizing the value of Kuwait's hydrocarbons resources while diversifying our national economy and increasing job opportunities," Saad Al-Shuwaib, chief executive of Kuwait Petroleum, said in a statement.
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