INSIGHT: Dow cuts further but deal remains elusive

04 December 2007 17:20  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--In a year in which Dow Chemical strategically has promised so much and delivered so little the company has fallen back on another series of cutbacks to help deliver greater competitiveness.

The measures announced on Tuesday represent a mixed bag. And implemented at any other time, in a piecemeal fashion, they would make little external impact.

But Dow seems to have decided that in the absence of any other concrete strategic progress they will help draw attention to the fact the world’s second largest chemicals maker means business.

“Our focus on financial discipline and low cost to serve remains as sharp as ever,” chief executive Andrew Liveris said in a press statement.

“We will continue to seek ways to refine our organisational structure asset base and business portfolio to ensure Dow’s competitiveness on the world stage,” he added.

Liveris has promised so much this year in terms of the company’s so-called ‘asset light’ strategy and its desire to create more market focused businesses that the restructuring package does not look as significant as it otherwise might.

Dow has been looking to create a foothold in the important India market but seems to have been thwarted at every step – although it is establishing a major global R&D (research and development) centre there.

The progress of plans for the Middle East and China has seemed achingly slow. The ‘asset light’ venture or ventures that were supposed to transform the company have not materialised.

Indeed the real excitement surrounding Dow kicked off in April with the dismissal of two senior executives over allegations that they were in discussions with third parties about the possible break-up of the company.

The M&A (merger and acquisition) focus has drifted since the global credit crunch hit in mid-year.

Yet analysts still see a range of companies that might interest Dow itself which, at the peak of the chemicals cycle, has been generating large amounts of cash.

The company said earlier this year it was looking at 60 possible acquisitions, joint ventures or divestments. But it postponed an early November investor meeting until early 2008, according to a company spokesman to make better use of everyone’s time.

Analysts don’t think a deal is imminent but they are keeping a close watch on Dow.

Joint venture partners for the commodity business could include Petrochemical Industries Company (PIC) in Kuwait, Saudi Aramco or India's Reliance, some say.

A good fit ‘specialty’ company might be Celanese, Cytec, Valpsar or Ciba Specialty Chemicals, Citigroup adds.

Dow has been linked rather obliquely to the industrial gases players Air Products and Air Liquide.

Senior management knows how difficult it is proving to be to strike the rights deal or deals to put the chemical giant’s asset intensive businesses into the sort of joint ventures that will benefit shareholders.

Dow now has a handful of market facing business platforms but needs more.

A Dow spokesman said that although advancement of Dow’s asset light strategy may not be as fast as some would like, progress is being made and 2007 will be looked on as a good year.

"We are still actively moving ahead on a number of fronts including joint ventures and acquisitions,” he said.

The current range of measures illustrate more of the sort of  work in progress that the company needs to undertake as the centre of gravity of key markets and businesses move towards the Middle East and Asia.

In some businesses Dow needs to cut back. In other functions it needs to consolidate and by doing so move.

Dow’s asset base will follow this trend although the speed at which it does so is reliant on a number of factors.

Dow would like to the world to think it is making progress.

By: Nigel Davis
+44 20 8652 3214

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