Tuesday, July 3, 2007

Dow Chemical Completes Acquisition

If Liveris says it will happen, it will.

Dow Chemical(DOW) announced on Monday it has completed the purchase German chemical maker Bayer AG's (BAY) Wolff Walsrode cellulosics business for about $725 million including the assumption of debt and pension commitments. They also announced the launch of a new specialty business unit, Dow Wolff Cellulosics, a specialty business unit with over $1 billion in annual sales. It is a combination of the Wolff Walsrode business and Dow's water-soluble polymers business.

The acquisition, which is expected to add to earnings within a year, is in-line with Midland, Michigan-based Dow's strategy of growing its specialty chemicals business.

This is yet another move by CEO Andrew Liveis that is perfectly in keeping with his announced strategy for DOW. In April he said on CNBC to David Faber, "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."

Liveris has also said the any acquisition Dow would make "must be immediately accredive to earnings" and this one again fits the bill perfectly.

Liveris has said he wants a coatings and a water business of $3 to $4 billions each. This only means one thing, more Dow acquisitions in the near future using it's growing cash pile. How can I be so sure?

To date, everything Liveris has said has come to fruition, there is no reason to start doubting him now.

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