The blog has always had enormous respect for Dow. This was due to their ability to manage unconventional risks, in a way that other chemical companies (such as the blog’s former employer, ICI), found impossible. Even when things went wrong, they always had a Plan B, which allowed them to exit on a sensible basis.
This time, however, there was clearly no Plan B with regard to the K-Dow JV and R&H purchase. This seems very strange, given that it was increasingly obvious through H2 that the value of chemical assets was declining very fast. Equally, there was always the awful warning of ICI’s attempted transition from petchems into downstream businesses in the 1990′s. This became a classic example of how to “buy high, sell low”.
Now Dow is faced with making the best of a very bad job. As ICIS news notes, it is paying $78.97/share versus the original $78/share. Plus, there is always the worry that, like ICI, an ‘efficiency-driven’ Dow may not really understand that R&H’s innovation-driven businesses rely on R&D for their long-term profits. Dow’s announcement of the “additional consolidation of 6 R&D facilities” is a very worrying sign.
The blog wishes ‘new Dow’ well, but its confidence has been badly shaken by the events of the last few months. Restoring it will take time.