Dow faces challenge to find M&A targets - Deutsche

14 December 2007 16:16  [Source: ICIS news]

LONDON (ICIS news)--Deutsche Bank on Friday said Dow Chemical faced a significant challenge in finding a viable acquisition target with its joint venture (JV) proceeds, due to the highly priced M&A environment.


Dow announced plans to put several petrochemical businesses in a 50/50 JV with Kuwait’s Petrochemical Industries Co (PIC), with CEO Andrew Liveris saying the company would not rule out multi-billion dollar acquisitions with the proceeds.


“Dow faces a significant challenge in deploying $7bn of cash from this transaction into a highly priced acquisition environment,” said Deutsche Bank analyst David Begleiter in a note to investors.


Dow’s shares surged over 6% after the JV announcement, with the company hitting a market capitalisation of around $42bn.


“While we believe Dow's petrochemical JV with a subsidiary of Kuwait Petroleum Corp is positive on a number of fronts, we believe much of the immediate value creation of $3.5bn was priced in by yesterday's $2.5bn increase in Dow's market cap,” said Begleiter.


However, Dow was expected to benefit from longer term value creation from the JV and multiple expansion from a more stable earnings profile, Begleiter added.


Dow will contribute its polyethylene, polypropylene, polycarbonate and amines business to the JV with 2006 total sales of $11bn and $2.5bn in earnings before interest, tax, depreciation and amortisation (EBITDA). The deal is expected to close in late 2008.


The bank maintained its ‘hold’ rating on Dow Chemical shares with a price target of $47.00.


At 10:30 EST, Dow Chemical shares were valued at $43.13 on New York Stock Exchange - nearly 3% lower than Thursday’s close.

By: Mark Watts
+44 20 8652 3214

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