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Disclosure (“none” means no position):Long DOW

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Busy day today. Was on Fox Business this morning discussing the results, will try to post video later …

Earnings:
The Company reported a loss of $1.68 per share; excluding certain items, the loss was $0.62 per share. Earnings in the fourth quarter of 2007 were $0.49 per share; excluding certain items, earnings in the fourth quarter of 2007 were $0.84 per share. (See Supplemental Information at the end of the release for a description of these items.) In addition, earnings for the quarter were reduced by a much higher effective tax rate, which was unfavorably impacted by several items totaling $295 million, equivalent to $0.32 per share.

The Company delivered on its fourth quarter commitments related to generating cash and controlling costs as outlined in October 2008. Management interventions contributed to cash provided by operating activities of $2.2 billion and free cash flow(1) of $1.2 billion in the quarter.

Sales for the fourth quarter were down 23 percent from the same period last year to $10.9 billion. Volume declined 17 percent, and was down in all operating segments and in all geographic areas, reflecting the global economic downturn as well as the de-stocking that occurred through most value chains.

The Company reduced production to match market conditions. This resulted in historically low operating rates, particularly in December which was 44 percent. For the quarter, the operating rate was 64 percent, a rate not seen in more than 25 years.

Price was down 6 percent in the quarter, as a 4 percent increase in the Performance segments was more than offset by a 15 percent decline in the Basics segments. The decline in Basics was principally due to a 23 percent drop in feedstock and energy costs versus the same quarter last year.
(1) Free cash flow is defined as “Cash provided by operating activities” of $2,249 million less “Capital expenditures” of $692 million less “Dividends paid to stockholders” of $389 million.

2008 Full-Year Highlights

Cash provided by operating activities was $4.7 billion in 2008, an improvement of more than $200 million versus 2007, against deteriorating economic conditions.

Despite the sales decline in the fourth quarter, 2008 sales increased 7 percent compared with 2007, setting another record for the Company of $57.5 billion. Price increased 12 percent, while volume was down 5 percent.

Dow AgroSciences reported full-year sales and EBIT(2) records. Sales grew 20 percent to $4.5 billion, reflecting an 8 percent increase in volume and a 12 percent increase in price, and delivering EBIT of $761 million.

Equity earnings declined to $787 million from $1.1 billion in 2007, reflecting the global demand destruction that took place in the fourth quarter of 2008.

Dow reported full-year earnings of $0.62 per share; excluding certain items, earnings for the year were $1.82 per share. Earnings for 2007 were $2.99 per share; excluding certain items, earnings for 2007 were $3.76 per share. (See Supplemental Information at the end of the release for a description of these items.)
Comment

Andrew N. Liveris, Dow’s chairman and chief executive officer, stated:
“With a global economic crisis unfolding during the quarter, we responded with speed and urgency to get ahead of the demand destruction that continued to accelerate as we approached the end of the year. We immediately put in place a full array of aggressive cash generation and cost and capital control measures that delivered results. We remain intensely focused on those actions that we can control and will continue to do so throughout 2009.”

Here is Dow’s (DOW) Answer to Rohm and Haas (ROH)
Dow Chemical Answers Rohn & Haas

Was asked this morning if I am selling Dow. No. Would I buy more now? I would wait until more clarity in litigation. I doubt the Judge will force a merger now. That being said, one cannot take anything for granted in court.

By waiting you may pass up considerable upside to shares as a favorable court ruling will cause shares to rally, but, a negative ruling will be far worse. That being said, if it is new money, one should wait or keep position small to limit risk.

With the economic outlook for the globe, low equity prices will be here for a while, no need to rush in and buy right now.

Disclosure (“none” means no position):Long Do, none

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Just got off the phone with “sources close to the situation”.

Some note:

– Dow (DOW) will answer the suit by Rohm & Hass (ROH) tomorrow
– They will be looking for the chancellor to issue a “business resolution”.
– Dow is still committed to the transaction
– Are in “active” conversations with several bidders for the previously named “K-Dow” JV with Kuwait. “Several other parties have come to the table” in bidding for the businesses.
– Dividend. Company credit rating is taking priority.

I got the impression that should a “business solution” to the litigation be required, the dividend may be safe but, it an immediate deal consummation is ordered, it is not. Now it should be noted that while Delaware Chancery Court Judge William B. Chandler III set the first day for March 9th and scheduled a trial of about five days, he said in the letter that “I strongly encourage the parties to focus on a business solution to this dispute.”

“The court will promptly rule at the trial’s conclusion,” Chandler added.

On page 24 Chandler said:

One thing that sort of strikes me — not knowing as much about this case as either of you or your colleagues — it strikes me that, A, there is a fundamental business problem here, and it is always my view that business problems are better resolved by business people; and that to the extent that the Court is called upon to resolve a legal issue, the Court will do that, of course, and will do it as promptly as possible. This Court obviously tries to accommodate parties who come and ask for expedited proceedings or accelerated proceedings because of the business necessities that a particular legal question implicates.

So, with that said, and with the hope that even after we resolve this immediate problem of how to go forward and in what manner to go forward, with the hope and trust that you will carry back — and I am sure you will — that the view of the Court is that it would be even better if the parties continue to try to figure out a way to resolve this business problem amongst the business people.

Full Filing:
Chancery Transcript

Anyone else take that to mean neither is going to get all of what they want? I have said it before, Rohm has the most to lose here, should this fail, they’ll not see $78 a share this decade, best they work with Dow.

Now, earnings are released tomorrow am and expect the news to be bad, just like the rest of the manufacturing world. Liveris & Co .will be pelted with questions on the merger, sale, dividend etc. Don’t expect concrete answers, just assurances which, in the current environment will not go very far to assuage investors.

This is one you’ll just have to wait out a few months

Disclosure (“none” means no position):Long DOW, none

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