2007/2/26 AP

Dow Chemical shares rose to a new year high after a British tabloid reported that Kohlberg Kravis Roberts, Blackstone Group and Carlyle Group may make a bid for the company. The Daily Express reported the groups may bid $60 per share, a premium of about 38 percent over Dow's Friday closing price.

Shares of Midland, Mich.-based Dow rose $2.64, or 6.1 percent, at $46.09 on the NYSE. Shares peaked at $47.26, beating a previous 52-week high of $44.20.

February 27, 2007 Detroit Free Press

Many in Midland worried about Dow Chemical takeover bid
Deal could be biggest-ever buyout

Published speculation that Midland-based Dow Chemical Co. might be a takeover target has people in its hometown and across Michigan worried.

"From young children to struggling families, they make a difference to the community," Sue Asher, who leads the United Way of Midland County, said Monday. "I would hate to see them bought out by someone who doesn't really care about the community."

Tim Letcher, who owns a Dunkin' Donuts franchise on South Saginaw Road between Dow's plant and headquarters, agreed.

"It is the heart of Midland," he said Monday of the company that has been there for well over a century.

Over the weekend, a British publication, London's Sunday Express, said private equity firms -- including Kohlberg Kravis Roberts & Co., Blackstone Capital Partners LP and the Carlyle Group -- are potentially interested in teaming up to buy Dow.

If the report, which cited no sources, is true, the deal would be the biggest-ever leveraged buyout, at $54 billion.

Dow is Michigan's third-largest publicly traded corporation, behind General Motors and Ford. Last year, it reported sales of $49.1 billion and profits of $3.7 billion. Dow spokesman Chris Huntley said Monday the company does not comment on rumors, but he pointed out that similar reports surfaced in late January and were mostly dismissed by stock analysts and the company's chairman and chief executive, Andrew Liveris.

Even so, the fear in Michigan was that a takeover of Dow would result in layoffs and closings like those announced last month by Pfizer Inc.

Pfizer said it would lay off 2,400 people in Michigan and shut its Ann Arbor campus and a facility in Kalamazoo because of excess capacity in the wake of mergers.

"We could have a Pfizer situation if they had an ownership change" at Dow, Lansing-based economist Patrick Anderson warned Monday.

Moreover, given the battered state of Michigan's economy, with GM and Ford struggling through massive reorganizations, and Chrysler rumored to be in play as a possible sale or merger target, a takeover of Dow likely would hit the state hard.

Dow has about 6,000 employees across the state and 43,000 workers worldwide. Add in Dow's joint-venture partner, Dow Corning, and the number rises to 8,700 employees in mid-Michigan.

Dow Chemical makes about 3,200 products, ranging from synthetic latex to weed killer, at more than 150 plants in 37 countries.

The Dow rumors have arisen during what is a boom time for buyouts. With interest rates low and excess cash sloshing around global markets, a cascade of record-setting deals shows no signs of stopping.

Indeed, the Dow rumors spread Monday even as a deal was announced for the Texas energy provider TXU Corp. that claims the title of biggest-ever buyout, worth $45 billion. The group targeting Dow probably would bid $60 a share, which was 38% above the company's Feb. 23 closing price, according to the report in England. Dow's stock closed Monday at $44.99 per share, up $1.54 for the day and the highest closing price in a little more than a year.

As an indication of how big a potential deal for Dow would be, a $54-billion buyout would be 34% bigger than all of Michigan's 344 merger-and-acquisition deals in 2006 combined. In a leveraged buyout, investors borrow huge sums to buy a company and take it private, meaning stock is no longer sold to the public. Then, after shaking up management, selling divisions, closing plants, or otherwise retooling the company, the investors hope to sell it, or take it public again, at a profit.

Like any large publicly traded corporation, Dow already is owned by an international roster of big investment houses, including Germany's Deutsche Bank AG and the New York State teachers' retirement system. But each owner holds just a sliver of Dow's shares in a relatively passive manner.

By contrast, in a leveraged buyout, the potential new owners would constitute just a handful of key investors bent on doing whatever it took to wring additional value out of Dow's assets, including selling or closing plants and divisions.

Midland and the company have grown together after both were founded in the late 1800s.

Today, like the Amway legacy in Grand Rapids, the Dow name is embedded to the city of about 41,700 people. H.H. Dow High School was named for the company's founder. At the city's other high school, Midland High, the sports teams are known as the Chemics.

Dow contributed more than $1 million to the local United Way last year.

This spring the Dow Diamond baseball park is slated to open just outside of downtown for the city's new minor league team, the Great Lakes Loons. Dow bought the stadium naming rights for $280,000 a year.

In January, Dow announced that for 2006, it earned $3.7 billion, or $3.82 per share, down from $4.5 billion, or $4.62 per share, in 2005. Sales were $49 billion in 2006, up 6% from 2005's $46.3 billion.

Forbes 2007/2/27

Market Scan
An Indian Bid For Dow Chemical?

Reliance Industries, India’s largest company by market capitalization, is reportedly seeking $2 billon in financing from banks to develop a gas field off India’s east coast, and it may be maneuvering to acquire a global petrochemical giant.

The Times of India reported Tuesday that Chairman Mukesh Ambani was in a position to raise $6 billion to buy foreign firms in concert with private equity funds. According to unnamed sources, the target is either Dow Chemical or a U.S. refinery.

India Times 2007/2/28

PE bid for Dow may ruin RIL's plans
The news that a clutch of PE players are eyeing Dow Chemicals, the largest chemical manufacturer in the US, could throw a spanner in the works for Reliance Industries. RIL is in the midst of hectic negotiations with Dow Chemicals for a possible joint venture. A large Reliance team, including polymer division president Kamal P Nanavaty, is camped in the US. RIL chairman Mukesh Ambani is expected to visit the US next month.

On Sunday, according to a report in the London-based Sunday Express, Dow had become the target of the biggest leveraged buyout by PE funds like Carlyle, Blackstone, KKR and Texas Pacific, who are teaming up to create $60-billion fund to bid for Dow.

Hit by shrinking margins and rising cost of feedstock and raw materials in its commodity chemicals and plastics businesses, Dow has been looking to move commodity business assets (estimated to be around $18 billion) to a separate joint venture with a strategic partner with access to raw materials. Commodity plastics make up about 24% of Dow’s $49-billion turnover while commodity chemicals comprise about 11%.

In the middle of last year, Reliance, which was interested in expanding its global footprint, began talking to Dow. The idea was simple: Dow would take on the onus of managing customer relationships while Reliance would shift manufacturing to low-cost locations like India.

If this JV were to take shape, Dow would get access to the low feedstock base in India and improve its margins on the commodity chemical operations. Dow margins on commodity chemicals are growing thinner, especially with the soaring cost of natural gas (feedstock) in the US.

At a recent investor conference in the US, Dow CEO Andrew Leveris had voiced concerns that the company had not been fully valued, compared to competitors like DuPont because of its commodity portfolio. Dow’s speciality chemicals business, meanwhile, had been performing well and generating hefty returns.

On the other hand, Reliance will gain access to global markets, which was difficult for an Indian player to penetrate on its own. This also ties in with Reliance’s plans to create a global outsourcing hub out of Jamnagar SEZ. Reliance is believed to have signed a broad-based MoU with Dow Chemicals. It would create a new petrochem powerhouse in the world, next only to DuPont.

Sources said that in the negotiations, so far, several options have been discussed. The most likely format will be a 51:49 arrangement, where the minority partners enjoy management control. Reliance had insisted that Dow should consolidate its stake in some of these assets before a JV would be signed.

Mar 16, 2007 Reuters

Dow Chemical deal talk no surprise: analysts

Speculation this week that Dow Chemical may forge a link with India's Reliance Industries Ltd. came as no surprise to analysts, who expect the U.S. company to move soon on its strategy to shift toward specialty products.

The Times of India on Friday said Reliance is close to signing a deal to establish a $20 billion joint venture that would include Dow's basic chemicals and plastics business.

After the demerger, Reliance will buy a 59% stake in the new company for about $12 billion, while Dow will retain the remaining 41% stake, valued at about $8 billion.

Neither Dow nor Reliance would comment on the unsourced report, which came just days after a British newspaper reported that buyout firms were readying a takeover bid for Dow worth $54 billion.

Analysts said Dow is likely to split off the basic chemicals and plastics business as part of what it calls its "asset light" strategy, which would give it a more nimble and higher-margin profile focusing on specialty chemicals.

"This is the time; there's so much pressure," said Hassan Ahmed, an analyst with HSBC. "So Dow management has a gun to their head to do something."

Dow said it is involved in many different negotiations but would not comment on any specific talks.

"Right now we are examining more than 60 potential (merger and acquisition) deals," said Chris Huntley, a Dow spokesman.

DILUTIVE DANGER?

Under the terms of the possible deal cited in the Times of India, Reliance would pay about $12 billion into a joint venture, with the remainder coming from Dow.

If the report is true, then the $20 billion joint venture would probably not include all of Dow's basic chemicals and plastics business, which had 2006 revenues of $23.6 billion, according to the Buckingham Research Group.

With the strength in those markets currently, a move into a such a joint venture might not be optimal for Dow, an analyst at Buckingham said.

"If you are selling at the peak, even though you are getting a good price, you are losing a lot of earnings," the analyst said.

Dow could take a cash boost from a joint venture and increase its current $2 billion share buyback program or boost its dividend.

The company's stock has rallied 13 percent so far this year to $45.20 per share on speculation some type of deal is in the works. It could see further upside, especially if it can close a deal on the terms stated in the Indian newspaper.

"I think if that happens, we can see the stock go north of $50," HSBC's Ahmed said.