INSIGHT: Dow focuses on delivery

30 April 2007 16:38  [Source: ICIS news]

LONDON (ICIS news)--“We are moving away from the rumour business into the delivery period,” Dow Chemical CEO Andrew Liveris declared last week following a tumultuous start to the year for North America’s largest chemicals player.

Besieged by speculation as to the future of the group, the deal or no deal period had persisted through April.

The potential for Dow’s break-up led to the dismissal of two key executives: former chief financial officer and senior advisor Pedro Reinhard, and Romeo Kreinberg, the executive who was at the forefront of Dow’s development of more market-facing businesses.

For the past two months Liveris felt he was in a “rugby scrum”, according to the UK’s Financial Times which published an interview with the Dow chief.

Liveris and Dow now clearly need to feel that they have the backing of shareholders for the “asset light” strategy that will see the company focused more on potentially higher added-value market-facing businesses and less on commodity petrochemicals and plastics.

So how Dow management executes that strategy and transforms the company over the coming months remains critical.

Dow seemed to demonstrate the benefits of its geographical and product spread in the first quarter when the financial results were hit hard by downturns in the US housing and automobile markets and by poor caustic and polyvinyl chloride (PVC) margins. But doing just that is not enough.

Liveris has promised more deals to advance the strategy on both fronts. His message, however, has been refined to exclude the big, blockbuster move.

Dow’s transition will be achieved step by step.

Just what does this mean? Dow’s styrenics venture in North America announced on 10 April was underwhelming, but the company’s plans for a new cracker project in Libya carried more weight.

Intriguingly, in its pursuit of “asset light” Dow continues to create a more attractive and influential petrochemicals footprint.

Dow will look for less cracker asset capacity in Europe given the Libya investment, Liveris suggested. He also held out the prospect of more significant news on the potentially giant project with Saudi Aramco in the next 30 to 60 days.

This broad-based chemicals venture promises to be hugely influential for both players.

Liveris warned, however, that Dow needs to strike the right deals in what appeared to be an echo not just of what might have been over the past few months but of recent history and the problems the company has faced following the $7.2bn Union Carbide acquisition in 2001.

“We cannot hollow out how we make money in the first place,” Liveris said in response to financial analysts’ questions in a conference call on 26 April.

Dow’s “bench” is terrific, he suggested, and the company has to move on from a “quarter full of distraction”.

Dow, however, is challenged to create a new history, quarter by quarter.

The ‘big deal’ seems out of the question, whether with Reliance Industries or another player.

Reliance is attractive to Dow because of its refinery integration in India and of Dow’s desire to gain a foothold in India’s fast growing polyolefins markets, but there is little else.

Liveris said there is more to announce on the deal front over the next six months and he stressed that management is working “on all aspects of the strategy”.

It pays to listen to what the chief says.

Dow is clearly pressing to achieve its asset-light vision but that may or may not involve significant parts of the portfolio.

The company has made some progress: money is being ploughed back into performance businesses, more deals are on the cards.

The big questions are whether more could have been achieved and whether others see the future in a similar light?

By: Nigel Davis
+44 20 8652 3214

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