CPC joint venture makes sense for Dow - JP Morgan

11 April 2007 16:01 [Source: ICIS news]

TORONTO (ICIS news)--Dow Chemical’s planned styrenics joint venture with Chevron Phillips Chemical (CPC) makes economic sense but is not likely to provide a big boost to Dow’s bottom line, JP Morgan said on Wednesday.

The 50:50 joint venture with CPC, announced on Tuesday, includes polystyrene (PS) and styrene assets from both firms in North and South America.

"The venture, ultimately, will probably be accretive to Dow by a few cents per share,” JP Morgan said in a research note to clients.

Dow produces about 1.5bn pounds/year of polystyrene (PS), according to JP Morgan.

Dow had seven plants but too little styrene for its PS operations, while Chevron had two facilities but too much styrene for its PS, JP Morgan said, adding: "There is room to improve transportation logistics.”

If Dow improved its styrenics margin by 1 cent/lb, the pre-tax benefit would be $15m (€11.2m) and the after-tax addition would be 1 cent per share, JP Morgan said.

The PS deal with CPC could provide insight into Dow’s strategy as it worked to increase its scale and integration through business combinations, JP Morgan added.

The deal implied a lower cost structure and larger market presence, at the cost of a partial loss of direct control of the assets, the analysts said.

($1 = €0.74)

By: Stefan Baumgarten
+1 713 525 2653

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