Dow Chemical stock undervalued - Liveris

13 December 2007 21:30  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Investors are undervaluing Dow Chemical’s stock in the public market in light of its joint venture (JV) deal Kuwait’s Petrochemical Industries Company (PIC), Dow Chief Executive Andrew Liveris said on Thursday.

“I want people to draw the conclusion we reached some years ago. Valuing this company with its global diversification and strong franchises, by its smallest common denominator - the ethylene cycle - is nonsense,” Liveris told ICIS.

Dow on Wednesday announced a multibillion-dollar petrochemical and plastics JV formed with PIC.

Dow valued the business it is putting in the JV at $19bn (€13bn). The company will receive a $9.5bn payment from PIC in exchange for its 50% stake. The businesses from Dow generate around $12bn in sales.

“Our friends in Kuwait see the value of a global franchise, and are valuing us far north of our public valuation,” said Liveris. “The stock market action today is reflecting that. They are also reflecting the seriousness of redirecting our resources to value-growth enterprises.”

Shares of Dow Chemical were up $2.65, or 6.4%, to $44.40 in early afternoon trading on the New York Stock Exchange, after reaching as high as $47.96 earlier in the day.

Dow’s market capitalisation stands at around $42bn and the company has net debt of about $7.8bn, for a total enterprise value of almost $50bn.

Dow’s commodity assets being put into the venture represent about a quarter of Dow’s overall sales of around $49bn, but the value of those assets reflected in the deal represents 38% of Dow’s total enterprise value.

Liveris said also sees greater value in the joint venture itself because of its back-integration into advantaged feedstocks.

“The future is to build advantaged feedstock positions - gas in Kuwait, and oil refineries elsewhere, whether they be built in India, China, the Middle East or North America,” noted Liveris.

“Our partners saw a global franchise where they have an opportunity to refinery-integrate in time to create new value - something they could not achieve on their own. Likewise, we could not do this on our own because we are not into oil and gas.”

($1.00 = €0.68)

By: Joseph Chang
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