Monday, October 15, 2007

Dow Chemical Postpones Investor Meeting: Hmmmm

The question is, why did Dow (DOW) do it?

On Friday, Dow postponed a meeting with institutional investors that was scheduled for Nov. 6th & 7th. Shares rose as high as 3.5% as investors speculated that the delay is linked to an announcement that may involve a major acquisition by the company or the spin-off of a business. It seems we are back where we were this spring with the Dow rumor mill.

Dow said in a note to investors, "As we move ahead with our transformational strategy, making solid progress on several fronts, we continue to explore a number of exciting opportunities." Dow spokesperson Chris Huntley said the meeting will now be held sometime early next year.

Just what is going on? A spin off? Doubt it. Acquisition? If something is happening, it would be the reason. Dow has made no secret of wanting to expand its coatings and water business 3 times their current sizes and has said the time is now to do it. That kind of growth cannot come organically so it must be down through the purchase of another company or part of one. They also have made no secret of their ambition to grow Dow Agro Sciences immediately and have not rules out any option to do it.

If you remember earlier this year it was disclosed Dow made overtures to DuPont (DD) to acquire it. Perhaps DuPont has had a change of heart? It would make sense seeing as they are falling behind both Monsanto (MON) and Dow in the seed race and are falling behind DOW in the chemical game given the flurry of joint ventures Dow has already announced this year. What DuPont may have once viewed as an insult of an offer, it may now view as a necessity.

A smaller specialty chemical company WR Grace (GRA) could be bought. With market cap of $2 billion, Dow could virtually write a check for Grace and it would expand Dow footprint in an area they want to expand in. Grace currently in the bankruptcy process due to asbestos litigation like USG (USG).

If it is a coatings company, the best out there currently is Sherwin Williams (SHW). The coatings industry has been consolidating rather quickly recently and Dow may have decided to pick up the cream of the crop. With a market cap of only $8 billion and producing over $600 million a year in earnings, virtually no debt and a top notch paint business franchise, Sherwin could easily be absorbed by Dow and would be accredive to earnings immediately which is one of CEO Andrew Liveras's conditions for any acquisition.

Alas, based on Dow's recent history, it really is just a delay because, as Huntley said "there is nothing new to say". It isn't their style to do anything this way. When they have something to announced, it is announced. Sorry, but sometimes the real reason is actually the one they give. The speculation still is a whole lot of fun though.

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