Statement by Dow Chemical Company on JV agreement with PIC of Kuwait

Published December 24th, 2008 - 08:10 GMT

Andrew Liveris, Chairman and CEO of The Dow Chemical Company, issued the following statement today on the current discussion and debate over the Company’s joint venture agreement with Kuwait’s Petrochemical Industries Company (PIC).


“Among the accomplishments I am most proud of since becoming Dow’s Chairman and Chief Executive Officer since 2005, has been the strong and growing economic relationship between our company and our business partners in Kuwait,” Liveris said. “Since the early 1990s we have worked together to establish four joint ventures, each of which has created economic development and prosperity and established the State of Kuwait as one of the leading petrochemical producers in the world.”


“In recent weeks there has been much discussion and debate about whether a fifth partnership to establish a new joint Kuwaiti-American company — K-Dow Petrochemicals — is in the long-term interest of the people of Kuwait,” Liveris continued.


“As the person who often sat at the table while the details of this joint venture were being settled, I know from personal experience that our Kuwaiti partners negotiated with tenacity and resolve to assure the company we were building together would be one that would be worthy of the immense talent and energy Kuwaiti men and women who would become its foundation.”


Dow has also issued the following responses to issues related to the joint venture recently reported in the media:

1. The deal is solid and was thoroughly and fairly negotiated
• Negotiations between the two parties began over two years ago.
• This transaction was originally announced in December 2007 and has proceeded through many regulatory requirements in Kuwait AND in the European Union and the United States and culminated in the signing of a definitive agreement which was signed by both parties on December 1, 2008. The process and progress has also been covered widely in the news media over the entire timeline.
• PIC and KPC have followed all required approvals and disclosures within Kuwait as required by law, including reviews with the Oil Ministry, Supreme Petroleum Council, KPC Board of Directors and PIC Board of Directors.
• PIC/KPC enlisted the services of two world-class advisors on the deal, which helped ensure a fair agreement for both parties could be reached. J.P. Morgan and PriceWaterhouseCoopers are well-known and world-class in assessing valuations and ensuring fairness of transactions.
• PIC/KPC enlisted the services of more than 300 advisors from these two companies and others, such as world class legal advisors of Ashurst and Baker Botts led by James A. Baker IV.
• Dow populated a data room with more than 140,000 pages of information for PIC/KPC and their advisors to review, and Dow answered more than 3,000 questions about the transaction during the 8 months of negotiations.

2. Exceptional value for price paid
• K-Dow will strengthen their existing businesses faster than either Dow or PIC could alone. The J-V will maximize its competitive advantage in both emerging and established geographies. This new venture will benefit from PIC's commitment to global petrochemicals growth, KPC's position as a top 10 global energy company and Dow's petrochemical leadership.
• The long-term fundamental value of K-Dow, and the opportunity for PIC, remains intact. PIC is getting:
o Leading market positions in several petrochemical product families, including the #1 position in polyethylene, the world’s most common plastic, OVERNIGHT.
o If K-Dow were a publicly traded company it would be a Fortune 200 company on Day 1!
o A strong global footprint in petrochemicals
o Significant growth prospects
o The Polyethylene business historically has grown above GDP on an annual basis, and has been one of Dow’s most profitable, cash-generating businesses.
o This transaction also fits PIC’s strategy and Kuwait’s desire to diversify its economy by integrating downstream in the chemical chain
• "The valuation for this deal is in line with previous deals in the chemical industry, if not better. In fact, it is approximately 30 % lower than Sabic's acquisition of GE Plastics.
• Kuwait is paying a net $6 billion (USD) for the deal – $3.5 billion less than originally announced a year ago. Because of the changes in the financial landscape, PIC’s payment to participate in this global venture was reduced from $9.5B to 6B, (when the special distribution payment of $1.5B to PIC in 1Q is delivered), resulting in PIC owning 50% of a global value-creating company with $15B in sales.
• The numbers being compared are the public market valuations for the entirety of The Dow Chemical Company (not the K-Dow portion) and are based on the volatile nature of the stock market. These numbers are not the value of Dow’s actual assets nor of those going into the joint venture.
• Nearly all companies globally have lost ‘valuations’ as the financial crisis has unfolded. At this point in time, there is a disconnection in the public market values of companies versus their intrinsic asset values. Another way of making this point is the sum of many companies assets are worth more than their value in the open market at the present time.
• Reports published in the past week by leading chemical sector securities analysts suggest PIC negotiated well, and the deal was fair and equitable.
o Analysts #1 comments: The closing price and net proceeds are a bit lower than expected for Dow; however, given recent market environment, we view this as a very fair deal for both parties. We believe this JV will be a world class player in the olefins/polyolefins chain in the future, due to its advantaged feedstock’s for growth opportunities, strong management with a history of operational excellence, and a lean, flexible financial position.
o Analyst #2 comments: New terms are less favorable to Dow. The re-cut deal suggests K-Dow will proceed, albeit on terms more favorable to PIC (Kuwait).

3. K-Dow will be good For Kuwait
• Kuwait, through Petrochemical Industries Company, will become a major player in the global petrochemicals industry, through K-Dow. K-Dow will be the largest polyethelyne producer in the world.
• 90% of Dow’s PE/PP capacity is in the 1st Quartile for Manufacturing costs based on 2007 Townsend Benchmark as compared to their peers.
• Dow will bring it’s long-standing reputation for well-run plants and good, safe and reliable operations to PIC.
• This venture will expand Kuwait’s influence around the globe -- beyond the oil industry, into the downstream industries of petrochemicals on a global scale. Kuwaitis will share pride in being part of a global industry leader.
• K-Dow will have a full slate of growth projects ready to go on Day 1. With opportunities from China to Brazil to North Africa and the Middle East, K-Dow is positioned for success. In my view, 50% of the earnings of this great company will be worth more to Dow than 100% of what these businesses could create on their own.
• K-Dow is good for Kuwait. It will contribute to the development of the Kuwaiti economy by continuing the diversification and development of Kuwait’s downstream economy. Downstream industries are more job-intensive, thereby creating more employment opportunities for people.
• It will create new employment opportunities around the world for Kuwaitis and enable the transfer of knowledge and training to Kuwaitis for long-term success. Kuwaitis who join K-Dow will have the chance to gain broad global experience -- working with K-Dow customers and other partners in Asia, Europe, Latin America and North America, in addition to the Gulf Region, to further Kuwait’s goal of driving private employment (verses government) which will increase Kuwait’s total competitiveness and reduce it’s reliance on Expatriates.
• K-Dow will join PIC’s other successful joint ventures with Dow: EQUATE, MEGlobal, Equipolymers, The Kuwait Olefins Company (TKOC), The Kuwait Styrene Company (TKSC)
• The name “K-Dow” was chosen to symbolize the combination of two great strengths: Kuwait plus Dow. K-Dow = Kuwait’s experience and capabilities + Dow’s existing businesses in plastics and chemicals
• Giving back to Kuwait. During 2009, K-Dow will identify opportunities for PIC to give back and contribute in Kuwait – through sponsorships, donations and internship programs for Kuwaiti students; both ‘parents’ of K-Dow (PIC and DOW) have a strong and generous reputation of supporting Kuwait and its people.

4. The Dow Chemical Company has been good for Kuwait
• Dow was a premier sponsor of the Kuwait America Foundation dinner earlier this year (March 12, 2008) in Washington, DC. This event helped to raise over $1,000,000 for Kuwaiti and Arab charities.
• Dow has a partnership with the Lothan Youth Achievement Center (LoYAC) of Kuwait, who is a proud supporter of the Kuwaiti people and we are proud to partner with them.
• Dow is currently the lead sponsor for LoYAC’s Center for Performing Arts and the F1 School Challenge. In 2009 we are studying the sponsorship of programs such as the International Internship, International Volunteering and ‘Service Is My Duty’ as they follow Dow’s community sustainability ethos more closely.
• We will participate, at the gold level, in the Kuwait Environmental Campaign -- a strategic project to protect the environment
• Dow is also a Gold sponsor of the National Manpower “Challenge” Program, aimed at promoting national employment in the private sector in Kuwait.

5. K-Dow will make products that are part of daily life
• Polyethylene and polypropylene comprise more than half of world polymer demand. PE is the most widely used of all plastics and can be found in everyday products from food packaging, milk jugs and plastic containers to pipes and liners. PP is a versatile plastic used in fibers, packaging films, non-wovens, durable goods, automotive parts, and consumer applications.
• Amines (EA and EOA) are a family of chemicals with a broad range of properties, used in various applications from wood treating and pharmaceutical processing, to coatings and consumer products.
• Polycarbonate is an engineering thermoplastic used in applications such as optical media, electrical and lighting.
• EG is a key raw material used in a wide variety of products and applications including the manufacture of polyester fibers, polyethylene terephthalate resins (PET), antifreeze formulations and other industrial products.
• PET resins are used in beverage bottles and other applications.

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