Dow, Chevron Phillips to link plastics operations
Tue Apr 10, 2007 1:28pm ET
NEW YORK, April 10 (Reuters) - Dow Chemical Co. and Chevron Phillips Chemical Co. said on Tuesday they planned to join forces in the Americas to produce plastics and raw materials used to make products ranging from car parts to foam packaging.
The planned 50-50 joint venture would link up the world's second- and eighth-largest styrenics companies, bringing Dow's vast processing and marketing arms into partnership with a business operated by two of the world's largest oil producers, Chevron Corp. and ConocoPhillips.
"The advantage of getting together is their upstream and our downstream complement each other," Dow Chief Executive Andrew Liveris told television financial news network CNBC.
Dow, which has been the subject of several takeover rumors, issued a statement on Monday saying it was not holding discussions regarding a possible leveraged buyout, as was reported in a British newspaper twice in recent weeks.
Liveris repeated that statement to Reuters on Tuesday, saying: "We are in no discussions."
The 50-50 joint venture with Chevron Phillips, which would link the companies' polystyrene and styrene monomer assets, is expected to close in the second half of the year and yield significant synergies in manufacturing, commercial operations and feedstock costs.
The styrenics business has long been a money loser for Dow, one analyst said, and the company has embarked on a strategy to shift away from the lower-margin commodity chemicals businesses toward higher-value specialty chemicals.
"I would imagine that in a best-case scenario, they may be able to break even or just eke out a profit for this JV," HSBC analyst Hassan Ahmed said.
Liveris said styrenics had generated positive cash flow for Dow; and although decreasing demand had hurt the industry in recent years, the new partners would have the scale to protect their market share.
"There's enough latent demand ... that the new company won't be a loser in the shrinkage wars," he said.
Dow Chemical's shares were down $1.32 or 2.8 percent to $45.31 per share on the New York Stock Exchange, while the broader Standard & Poor's 500 Index was slightly firmer.
No financial details were released from the planned link-up under the nonbinding memorandum of understanding signed by the companies.
The new partnership is expected to combine Dow's styrene monomer plant in Camacari, Brazil, and six polystyrene plants in the United States, Colombia and Brazil, with Chevron Phillips' Louisiana styrene monomer plant and Ohio polystyrene plant.
Chevron Phillips Chemical was formed in 2000 from the petrochemical businesses of Chevron and Phillips Petroleum Corp., which is part of ConocoPhillips.
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