Sunday, June 3, 2007

Dow Chemical (DOW): "Going Hunting"

"I want to have a water business that is $2 billion or $3 billion within two or three years (currently $400 million). I want a coatings business or a buildings solutions business that is equally as big in two or three years," Said Dow Chemical (DOW) CEO Andrew Liveris in an interview with Reuters Television.. He continued, "These are the areas where we are going to go hunting."

Liveras was being interviewed in relation to rumors that Dow was trying to acquire German rival BASF (BF). This comes on the heals of recent revelations that Dow made overtures to acquire DuPont (DD) last fall.

Liveras has spent the last three years cleaning up Dow's balance sheet and now the company is in fantastic shape. With debt at it's lowest level this century, $2.5 billion in the bank, producing almost $4 billion from operations annually and a $3 billion share buyback ongoing, Dow is now in position to acquire businesses. Is it BASF? Who knows. What is of interest here is what Liveras did not say, when asked he replied "We'll never comment on a rumor like that, but I will say that between Dow and BASF you are looking at two of the world's leading chemical companies and reality has to set in on do-ability, The barriers to doing deals like that are not just financial." What didn't he say? NO. When asked about the possibility of a Dow buyout in the past, Liveras has been crystal clear that it would not happen, this response is a bit muddy. What is clear? Liveras has made no bones about his desire to grow through acquisitions and partnerships like the one recently announced with Saudi Arabia and based on to date results, his deal making is far from finished.

If he wants a coating business, how about Sherwin Williams (SHW)? A buildings solutions? How about Owens Corning (OC)? Both could be had for a song at their current valuations, have international operations and are leaders in their business.

Now, as an investor who holds most picks several years, if not decades, normally I despise the thought of one of my picks being bought out. It means that I was right, it was undervalued and the purchase price will bring me a nice quick return at the expense of a bunch of future ones. That is the reason these folks buy them, they recognize this. But, when I own both sides of the equation (the buyer and the seller), go ahead kids, merge away. I get a nice quick return on my pick, and continue to benefit from it's results with my ownership of the buyer and DOW gets a sweet return on it's money sitting in the bank. Win-Win

One thing is for certain, by the time this decade is over, the Dow Chemical Company I know today will be far different and my kids college funds will be much larger.

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