01 May 2009 20:27 [Source: ICIS news]
By Joseph Chang
NEW YORK (ICIS news)--US major Dow Chemical would likely sell its Dow AgroSciences business only as a last resort or if it were offered a full valuation, Wall Street analysts said on Friday.
“We view the sale of the agricultural operations in whole or in part as about the last step that Dow would take,” said JPMorgan analyst Jeffrey Zekauskas in a research note.
“The whole point of the Rohm and Haas acquisition was to increase the specialty character of the company,” he added.
Divesting Dow AgroSciences would simply amount to exchanging one specialty business for another, Zekauskas said.
“Should Dow be unable to sell various commodity plastics, adhesives and latex assets, in our opinion, it would then look toward the sale of the agricultural asset as something of a last resort,” Zekauskas said.
Dow, which acquired US specialty chemical giant Rohm and Haas in April for around $19bn (€14bn), is seeking asset sales to pay down massive debt taken on to complete the deal, including a $12.5bn bridge loan.
Chairman and CEO Andrew Liveris said in a conference call that the company is considering options for Dow AgroSciences, including a sale, an initial public offering (IPO) or a joint venture.
“This business is strategic to Dow. But ... we have launched a rigorous evaluation process underway here as well, as we continue to assist the right strategic outcome for this business,” he said on the call.
“We suspect that Dow will only let this business go if a full valuation is offered,” said BB&T Capital Markets analyst Frank Mitsch.
Credit Suisse analyst John McNulty estimates the potential value of Dow AgroSciences, plus other non-strategic stand-alone businesses for sale such as Rohm and Haas’ powder coatings unit, at over $15bn.
Liveris valued the non-strategic stand-alone businesses at $2bn-3bn.
Dow AgroSciences has been the star performer in the company’s portfolio. The unit’s first-quarter operating profits rose by 2% to a record $338m on 10% higher sales of $1.45bn, while all other Dow segments posted profit declines or losses.
Including Dow AgroSciences, the total value of potential divestitures for Dow is $25bn, according to Liveris.
“Any question of Dow falling into financial distress was mitigated, as even half that target would eliminate the bridge loan,” said Citigroup analyst PJ Juvekar.
“While outreach and dialogue continues with Kuwaiti partners, there are other parallel negotiations that are ongoing with two other state-owned resource owners, on an equivalent basis for the similar scope of the original K-Dow venture,” Liveris said.
The negotiations could lead to a deal valued at $4bn-6bn, he added.
Dow is also seeking to divest aromatic and derivatives assets, including styrene-butadiene rubber (SBR) and SB latex, with a value of $1bn-2bn, said Liveris.
Previously announced potential divestments include Dow’s stake in the TRN Belgian refinery venture, equity stakes in olefin derivatives businesses in Southeast Asia and its calcium chloride business.
($1 = €0.75)
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