Dow Chemicals to sue Kuwait over failed petrochemicals JV
07 January 2009
Dow Chemical Co is planning to seek legal, operational and financial recourse to enforce its rights under a failed joint-venture deal with Kuwait for a petrochemicals project.
Dow Chemical said it will sue Kuwait for over $2.5 billion for pulling out of their planned $17.4 billion petrochemical joint venture, and mentioned that two other parties have since expressed interest in the JV unit.
"We will stay on strategy," CEO Andrew Liveris said, adding, "The news of our demise is greatly exaggerated." Liveris also said Dow is prepared to pay the penalty for missing next Monday's deadline for the closure of the strategic Rohm & Haas takeover.
The latest development may jeopardise Dow Chemical's ambitious expansion plans in West Asia, analysts opine.
Dow Chemicals, based in Midland, Mich, was notified on 31 December that Petrochemical Industries, or PIC, would postpone their K-Dow venture just days before its launch. The oil company said it had to stand down when the Kuwaiti Supreme Petroleum Council withdrew its earlier support. (See: Dow Chemicals attempts to keep $15 billion bid for Rohm & Haas alive: report)
"Pursuing legal options is not a decision we take lightly, especially because of the longstanding partnerships we have established in Kuwait over the past decade," said Dow CEO Andrew Liveris in a statement. "But PIC is in breach of contract, and we must take action to protect the interests of our company and our shareholders.''
''We were shocked by this news, and this was completely unexpected given the approvals already received and the behavior, actions and words from our partners,'' he admitted, although he would not agree on the possible impact on the Rohm & Haas deal.
Dow executives have previously said the $18 billion Rohm & Haas acquisition is not contingent on the $9 billion in cash it would have obtained by closing the Kuwait joint venture. Dow has secured a $13 billion short-term loan from a group of banks and $4 billion in other financing that it says will help fund the acquisition. Many of those bankers said they remain committed to providing the money for the deal, which must close by the end of this week to avoid incurring extra costs. Dow agreed in July to buy Rohm & Haas for $15.4 billion and assume $3.4 billion of debt. (See: Dow Chemical acquires Rohm & Haas for $18.8 billion)
Dow's agreement with Rohm & Haas doesn't allow it to back out by paying a cancellation penalty. Rather, Dow will have to pay a steep price, raising its $78-a-share offer by 1.7 cents a day, if it delays past 10 January. Any delay would increase the cost of the acquisition by about $3 million a day, according to calculations based on a company filing.
Another major chemical manufacturer, privately held Lyondell Basell Industries, said two of its units filed for bankruptcy protection Tuesday after sinking revenue left it unable to manage a heavy debt load. Dutch chemicals maker Basell International Holdings in 2007 paid a premium of about 20 per cent to buy Houston-based Lyondell Chemical. (See: Chemical maker LyondellBasell may be on the brink of bankruptcy)