Wednesday, April 11, 2007

DOW CEO Liveris: No Deal

DOW Chemical CEO Andrew Liveris appeared on CNBC on Tuesday to attempt to "put to bed once and for all" the rumors of an LBO. Appearing on David Faber's segment he reiterated the companies stance that they have had "no talks with any private equity group regarding an LBO". If they had, he said "we would be the first to tell people". He went on to state that the true value of DOW is in it integration of both upstream and downstream operations and that integration is "total." This level of integration is shared by only two chemical companies in the world, DOW and BASF. An LBO, he said that would break up the pieces of DOW and sell them off would destroy that value for shareholders. In this instance, an LBO would lead to "value destruction, not creation". Other notables from the conversation:

"We are currently involved in over 60 deals flows, one of which we announced this morning with Chevron Phillips Chemical"

From The Press Release:
  • Dow Chemical Co. (NYSE:DOW - News) and Chevron Phillips Chemical Co. (NYSE:CVX - News; NYSE:COP - News) said on Tuesday they planned to form a joint venture of their plastics and plastic feedstock operations in the Americas.
  • The 50-50 joint venture, which would link the companies' polystyrene and styrene monomer assets, is expected to close in the second half of the year and yield significant synergies in manufacturing, commercial and feedstocks.
  • No financial details were released from the planned link-up under the nonbinding memorandum of understanding signed by the companies.
  • The new partnership is expected to combine Dow's styrene monomer plant in Camacari, Brazil, and six polystyrene plants in the United States, Colombia and Brazil, with Chevron Phillips' Louisiana styrene monomer plant and Ohio polystyrene plant.
In this joint venture, the refining capabilities of Chevron Phillips upstream operations (which Dow does not do), compliment perfectly the downstream plastics operations of DOW (which Chevron Phillips does not do). In essence, Dow is receiving guaranteed feedstock at more than competitive prices in exchange some of the profits from the sale of the final product. A win- win for both companies. This is a vital change in the business strategy of Dow.

When asked about using the growing cash balance at DOW and its now "de-levered" balance sheet for acquisitions, Liveris gave tremendous insight as to what DOW may be looking at. He said:

"We have put the company back in charge of its own future which includes, acquisitions. Now, acquisitions of what companies or what businesses? You've read the strategy I am sure and you just implied it when you referred to GE plastics, we are looking for downstream businesses that provide earnings growth and earnings momentum that compliment our own businesses....."

".... I won't comment on any specific deal (after being asked about his interest in GE Plastics) but with over 60 deals in the works, we are looking at everything. It is the deals we haven't done that are the most instructive. This is a company that financial discipline and making sure that the deals we do do, fit our strategy and we are not just going to come around and buy whatever is available. Now, having said that, look at the profiles, look at the downstream businesses, we are not interested in more commodities, we are interested in technology rich downstream businesses."

In the past I have pleaded on this blog with CEO Liveris not to give in to the temptation of the easy LBO money. It would seem, based on this mornings interview that those fears should be put to rest. It is also apparent that Liveris is in this thing for the long term. When I reviewed his annual letter to shareholders last week I said a sale of the company was not in the works for 2007. So far so good on that one. Liveras did say that 2007 was going to be a "significant year". As I have said before, nothing he has done up until this point has lead me to doubt anything he says, no reason to start now...

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