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Dow Chemical may make counterbid for ICI: source
Wed Aug 1, 2007 11:54AM EDT

NEW YORK (Reuters) - Dow Chemical Co., the largest U.S. chemical maker, is considering making a bid for Britain's Imperial Chemical Industries Plc, a source familiar with the matter said on Wednesday.

Earlier this week, ICI rejected an improved 7.8 billion-pound ($15.9 billion) or 650 pence-a-share takeover proposal from Dutch chemical group Akzo Nobel.

Dow has hired investment bank Lazard to advise on a possible counterbid, the source said.

However, a bid for ICI is not imminent and the possibility of an offer is merely being assessed, the source said.

A spokesman for Dow said the company does not comment on market rumors and speculation. A spokeswoman for Lazard was not immediately available to comment.

Shares in ICI were up 0.6 percent at 627.5p in London trade, while the DJ Stoxx European chemical index was trading down 1.5 percent.

ICI, the maker of Dulux paints, has long been seen as a bid target after slimming down to focus on higher-margin paints and adhesives.

Analysts have said DuPont Co. of the United States, Germany's BASF AG and India's Reliance Industries Ltd. might also contemplate making a bid.

Spokesmen for BASF and DuPont said the companies do not comment on market rumors, while a spokesperson for Reliance was not immediately available for comment.

If ICI were to agree to a takeover, it would be the latest in a wave of acquisitions that the chemicals sector has recently witnessed.

Last month, U.S. chemical maker Huntsman Corp. agreed to a $6.5 billion bid from Apollo Management's Hexion Specialty Chemicals, while Lyondell Chemical Co. agreed to a $12.7 billion offer from Basell. In May, General Electric Co. sold its plastics business to Saudi Basic Industries Corp. for $11.6 billion.

DOW STRATEGY

Dow has repeatedly stressed that it plans to invest in and grow its specialty chemical businesses, while adopting a less costly joint-venture strategy to grow its commodity chemicals businesses.

Midland, Michigan-based Dow has also set apart coatings as one of its key growth areas. ICI's assets would boost Dow's presence in the coatings arena and also give the company a foothold in the European coatings market.

However, HSBC analyst Hassan Ahmed said a bid from Dow would be unlikely, as a deal for ICI would be quite costly and cost savings from the deal would be hard to identify.

Ahmed said shares of ICI have risen about 70 percent over the last 12 months and the company trades at about 11 times its 2007 earnings before interest, taxes, depreciation and amortization (EBITDA).

In comparison, ICI's U.S. rival PPG Industries Inc. trades at 7.4 times the consensus 2007 EBITDA forecast, while Sherwin-Williams Co. trades at about 9.2 times consensus 2007 EBITDA forecast, Ahmed said.

"In order for any company to acquire ICI, you need to justify the acquisition with very large synergies. Now considering that there is hardly a portfolio overlap between Dow and ICI, that's going to be very, very hard," said Ahmed.

AKZO BID FACES HURDLES 

Akzo, which teamed up with German consumer products group Henkel over its proposal, has to decide by August 9 whether it will make a firm bid or walk away.

The Financial Times reported on Wednesday that Akzo was facing a potential rebellion after one of its biggest investors, TPG-Axon, said Akzo's recently raised offer for ICI was too high.

Dinakar Singh, managing partner at TPG-Axon, a U.S. asset manager holding a 3.5 percent stake in Akzo, wrote to Akzo's chairman to outline his opposition, the paper said.

"We do not believe this acquisition is justified by numbers and we fear Akzo's approach has become increasingly desperate rather than thoughtful and disciplined," Singh said in a letter seen by the paper.

A spokesman for Akzo said company executives have shareholder interests uppermost in their minds. He declined to comment on the letter and the report that Dow was mulling a bid for ICI.

Akzo shares traded down 0.7 percent at 60.14 euros.

($1=.4921 Pound)

Source: Reuters

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