I hope people are not surprised by this. The question here is not about the court case, but of how much damage Kuwait wants done to its reputation in the international community as a potential business partner.
On December 31, 2008, Dow Chemical (DOW) received official written notice from Petrochemical Industries Company (PIC) of Kuwait that the closing must be postponed because the Kuwaiti Supreme Petroleum Council withdrew its earlier approval of the transaction. As a result, Dow has said it will seek to enforce its rights under the terms of the various agreements and the JVFA executed by Dow and PIC since the joint venture partnership was first announced in December 2007.
“We were shocked by this news, and this was completely unexpected given the approvals already received and the behavior, actions and words from our partners. We have over 1,500 documents prepared for closing for what we believed to be Day 1 of K-Dow Petrochemicals on January 2,” said Liveris. “Pursuing legal options is not a decision we take lightly, especially because of the longstanding partnerships we have established in Kuwait over the past decade, but PIC is in breach of contract, and we must take action to protect the interests of our company and our shareholders.”
Beyond K-Dow: New Partnerships, New Opportunities
Although Dow is prepared to close K-Dow immediately if PIC does indeed cure the breach of contract, the Company has already been approached by other interested parties about joint venturing with Dow for the basic plastics businesses. As a result, Dow has also announced it will establish a formal process to secure a joint venture partner to accomplish the goals of its asset light strategy. The core businesses involved in the K-Dow joint venture include strong Dow franchise businesses, among them the largest and strongest producer of polyethylene in the world. Polyethylene is the world’s largest thermoplastic and for the last several decades has grown well above global GDP.
“Prior to signing the definitive agreement with our Kuwaiti partners about the K-Dow joint venture, we had other options and partners to consider,” Liveris said. “Some of these discussions were active as recently as November, and we have already been contacted by other interested parties and have begun discussions. This can be done on an accelerated timeline due to the considerable groundwork that has already been established in anticipation of the K-Dow joint venture.”
Dow believes that the identification of an alternative joint venture partner for Dow’s basic plastics business combined with the acceleration of planned divestitures and several additional divestments that are consistent with the Company’s strategy will yield proceeds greater than the funds Dow expected to receive in connection with the K-Dow joint venture.
Now it was just three weeks ago Dow and Kuwait finalized the JV and set up shop in Michigan. It was a done deal and Dow’s action are about that.
When the Kuwait action was first announced I said: “Kuwait needs to look past today. This was the first mega scale JV in the country and based on current actions, may be the last for a while. Let’s not forget Dow currently has JV’s in Saudi Arabia, Russia, South America and China proceeding without delay or problems. The Saudi deal at Ras Tanura is nearing first stage completion. Does anyone really think Dow CEO Andrew Liveris has not picked up the phone and called them or even Dubia to inquire about another partnership?”
Today’s statement confirm’s Dow is talking to other potential partners. Who called who first is irrelevant. Dow has options.
Prediction? What Dow’s wants is the $2.5b breakup fee from Kuwait. It will then created a JV with another partner at a lower price than the $7.5b Kuwait was going to pay Dow. The new parnter gets a great deal, Dow gets its money and at the same time sticks its finger in the eye of the Kuwaities.
OR
Kuwait realizes they are doing more damage to themselves than any present deal could do, wants to avoid the discovery process in court (or Dow making public the 1500 pages of communications it has with them) that would lay bare their deception to the world and capitulates on the deal, perhaps restructuring it not for a lower prices but delaying some payments to the JV.
This is a game of chicken now and unfortunately for Kuwait, Dow has an out in another partner. Can Kuwait really afford to let the chance to get these assets go? They can’t.
Disclosure (“none” means no position):Long DOW
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