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Andrew Liveris, Chairman and CEO of The Dow Chemical Company (NYSE:DOW), issued the following statement today on the current discussion and debate over the Company’s joint venture agreement with Kuwait’s Petrochemical Industries Company (PIC)

“Among the accomplishments I am most proud of since becoming Dow’s Chairman and Chief Executive Officer since 2005, has been the strong and growing economic relationship between our company and our business partners in Kuwait,” Liveris said.

“Since the early 1990s we have worked together to establish four joint ventures, each of which has created economic development and prosperity and established the State of Kuwait as one of the leading petrochemical producers in the world.”

“In recent weeks there has been much discussion and debate about whether a fifth partnership to establish a new joint Kuwaiti-American company — K-Dow Petrochemicals — is in the long-term interest of the people of Kuwait,” Liveris continued.

“As the person who often sat at the table while the details of this joint venture were being settled, I know from personal experience that our Kuwaiti partners negotiated with tenacity and resolve to assure the company we were building together would be one that would be worthy of the immense talent and energy Kuwaiti men and women who would become its foundation.”

Dow has also issued the following responses to issues related to the joint venture recently reported in the media:

1. The deal is solid and was thoroughly and fairly negotiated

• Negotiations between the two parties began over two years ago.

• This transaction was originally announced in December 2007 and has proceeded through many regulatory requirements in Kuwait AND in the European Union and the United States and culminated in the signing of a definitive agreement which was signed by both parties on December 1, 2008. The process and progress has also been covered widely in the news media over the entire timeline.

• PIC and KPC have followed all required approvals and disclosures within Kuwait as required by law, including reviews with the Oil Ministry, Supreme Petroleum Council, KPC Board of Directors and PIC Board of Directors.

• PIC/KPC enlisted the services of two world-class advisors on the deal, which helped ensure a fair agreement for both parties could be reached. J.P. Morgan and PriceWaterhouseCoopers are well-known and world-class in assessing valuations and ensuring fairness of transactions.

• PIC/KPC enlisted the services of more than 300 advisors from these two companies and others, such as world class legal advisors of Ashurst and Baker Botts led by James A. Baker IV.

• Dow populated a data room with more than 140,000 pages of information for PIC/KPC and their advisors to review, and Dow answered more than 3,000 questions about the transaction during the 8 months of negotiations.

2. Exceptional value for price paid

• K-Dow will strengthen their existing businesses faster than either Dow or PIC could alone. The J-V will maximize its competitive advantage in both emerging and established geographies. This new venture will benefit from PIC’s commitment to global petrochemicals growth, KPC’s position as a top 10 global energy company and Dow’s petrochemical leadership.

• The long-term fundamental value of K-Dow, and the opportunity for PIC, remains intact. PIC is getting:

– Leading market positions in several petrochemical product families, including the #1 position in polyethylene, the world’s most common plastic, OVERNIGHT.

– If K-Dow were a publicly traded company it would be a Fortune 200 company on Day 1!

– A strong global footprint in petrochemicals

– Significant growth prospects

– The Polyethylene business historically has grown above GDP on an annual basis, and has been one of Dow’s most profitable, cash-generating businesses.

– This transaction also fits PIC’s strategy and Kuwait’s desire to diversify its economy by integrating downstream in the chemical chain

• “The valuation for this deal is in line with previous deals in the chemical industry, if not better. In fact, it is approximately 30 % lower than Sabic’s acquisition of GE Plastics.

• Kuwait is paying a net $6 billion (USD) for the deal – $3.5 billion less than originally announced a year ago. Because of the changes in the financial landscape, PIC’s payment to participate in this global venture was reduced from $9.5B to 6B, (when the special distribution payment of $1.5B to PIC in 1Q is delivered), resulting in PIC owning 50% of a global value-creating company with $15B in sales.

• The numbers being compared are the public market valuations for the entirety of The Dow Chemical Company (not the K-Dow portion) and are based on the volatile nature of the stock market. These numbers are not the value of Dow’s actual assets nor of those going into the joint venture.

• Nearly all companies globally have lost ‘valuations’ as the financial crisis has unfolded. At this point in time, there is a disconnection in the public market values of companies versus their intrinsic asset values. Another way of making this point is the sum of many companies assets are worth more than their value in the open market at the present time.

• Reports published in the past week by leading chemical sector securities analysts suggest PIC negotiated well, and the deal was fair and equitable.

– Analysts #1 comments: The closing price and net proceeds are a bit lower than expected for Dow; however, given recent market environment, we view this as a very fair deal for both parties. We believe this JV will be a world class player in the olefins/polyolefins chain in the future, due to its advantaged feedstock’s for growth opportunities, strong management with a history of operational excellence, and a lean, flexible financial position.

– Analyst #2 comments: New terms are less favorable to Dow. The re-cut deal suggests K-Dow will proceed, albeit on terms more favorable to PIC (Kuwait).

3. K-Dow will be good For Kuwait

• Kuwait, through Petrochemical Industries Company, will become a major player in the global petrochemicals industry, through K-Dow. K-Dow will be the largest polyethelyne producer in the world.

• 90% of Dow’s PE/PP capacity is in the 1st Quartile for Manufacturing costs based on 2007 Townsend Benchmark as compared to their peers.

• Dow will bring it’s long-standing reputation for well-run plants and good, safe and reliable operations to PIC.

• This venture will expand Kuwait’s influence around the globe — beyond the oil industry, into the downstream industries of petrochemicals on a global scale. Kuwaitis will share pride in being part of a global industry leader.

• K-Dow will have a full slate of growth projects ready to go on Day 1. With opportunities from China to Brazil to North Africa and the Middle East, K-Dow is positioned for success. In my view, 50% of the earnings of this great company will be worth more to Dow than 100% of what these businesses could create on their own.

• K-Dow is good for Kuwait. It will contribute to the development of the Kuwaiti economy by continuing the diversification and development of Kuwait’s downstream economy. Downstream industries are more job-intensive, thereby creating more employment opportunities for people.

• It will create new employment opportunities around the world for Kuwaitis and enable the transfer of knowledge and training to Kuwaitis for long-term success. Kuwaitis who join K-Dow will have the chance to gain broad global experience — working with K-Dow customers and other partners in Asia, Europe, Latin America and North America, in addition to the Gulf Region, to further Kuwait’s goal of driving private employment (verses government) which will increase Kuwait’s total competitiveness and reduce it’s reliance on Expatriates.

• K-Dow will join PIC’s other successful joint ventures with Dow: EQUATE, MEGlobal, Equipolymers, The Kuwait Olefins Company (TKOC), The Kuwait Styrene Company (TKSC)

• The name “K-Dow” was chosen to symbolize the combination of two great strengths: Kuwait plus Dow. K-Dow = Kuwait’s experience and capabilities + Dow’s existing businesses in plastics and chemicals

• Giving back to Kuwait. During 2009, K-Dow will identify opportunities for PIC to give back and contribute in Kuwait – through sponsorships, donations and internship programs for Kuwaiti students; both ‘parents’ of K-Dow (PIC and DOW) have a strong and generous reputation of supporting Kuwait and its people.

4. The Dow Chemical Company has been good for Kuwait
• Dow was a premier sponsor of the Kuwait America Foundation dinner earlier this year (March 12, 2008) in Washington, DC. This event helped to raise over $1,000,000 for Kuwaiti and Arab charities.

• Dow has a partnership with the Lothan Youth Achievement Center (LoYAC) of Kuwait, who is a proud supporter of the Kuwaiti people and we are proud to partner with them.

• Dow is currently the lead sponsor for LoYAC’s Center for Performing Arts and the F1 School Challenge. In 2009 we are studying the sponsorship of programs such as the International Internship, International Volunteering and ‘Service Is My Duty’ as they follow Dow’s community sustainability ethos more closely.

• We will participate, at the gold level, in the Kuwait Environmental Campaign — a strategic project to protect the environment

• Dow is also a Gold sponsor of the National Manpower “Challenge” Program, aimed at promoting national employment in the private sector in Kuwait.

5. K-Dow will make products that are part of daily life

• Polyethylene and polypropylene comprise more than half of world polymer demand. PE is the most widely used of all plastics and can be found in everyday products from food packaging, milk jugs and plastic containers to pipes and liners. PP is a versatile plastic used in fibers, packaging films, non-wovens, durable goods, automotive parts, and consumer applications.

• Amines (EA and EOA) are a family of chemicals with a broad range of properties, used in various applications from wood treating and pharmaceutical processing, to coatings and consumer products.

• Polycarbonate is an engineering thermoplastic used in applications such as optical media, electrical and lighting.

• EG is a key raw material used in a wide variety of products and applications including the manufacture of polyester fibers, polyethylene terephthalate resins (PET), antifreeze formulations and other industrial products.

• PET resins are used in beverage bottles and other applications.
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Disclosure (“none” means no position):Long DOW
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Despite opposition from a small group of lawmakers, the deal will get done..

From the Kuwait Times

KUWAIT: More lawmakers yesterday pressed the government to scrap a multibillion-dollar deal Kuwait signed with US giant Dow Chemical (NYSE:DOW), but the oil minister defended the deal, saying it passed through proper channels and was of great strategic importance for the country. “We are going ahead with the deal in accordance with the signed agreement,” Mohammad Al-Olaim told a press conference, saying the deal took two years of negotiations and studies with the assistance of the best international consultant houses

Meanwhile, a government official revealed that the government is reportedly set to enter negotiations with the Dow over the controversial penalty clause. Cabinet members also want to discuss the details of expected returns from the deal and to reevaluate Dow’s assets and performance in order to ensure there are sufficient guarantees for the deal to go ahead or to withdraw totally from the deal before the January deadline.

At the press conference, Olaim said the project was first approved by the Petrochemicals Industries Co (PIC) and later by Kuwait Petroleum Corp (KPC) before sending the project to the Supreme Petroleum Council (SPC). After discussing it, the SPC asked the company to renegotiate its value in light of the global financial crisis and PIC managed to reduce Kuwait’s share from $9 billion to $7.5 billion, he said.

When PIC sent the final proposal to SPC, it proposed three options: either to reject the deal, wait and see how the crisis develops or approve it. The SPC sanctioned the deal and it was signed last month, he said. The deal will enable PIC to be a partner in 40 plants spread in the United States, Chile, Argentina, Canada, Holland, Spain and Germany, besides owning the finest technology in the field. “The new company, K-Dow, is expected to become one of the five largest global petrochemical companies,” Olaim said.

He said that the documents of the deal were referred to the Audit Bureau in line with a law that requires oil companies to refer their projects to the bureau after they were ready. Olaim said that debate about the deal is acceptable “since we are in a democratic country”, but insisted that the “current environment is not conducive to development projects because of the high dose of politics”.

The minister said that certain newspapers have been targeting him because of things he has done to safeguard national and public interests, especially with the petition he filed against the ruling on the Kuwait Oil Tanker Company case. “They want me to pay the price for what I did to safeguard public funds in my capacity as oil minister,” said Olaim, who warned that the media was being used to influence the outcome of major contracts. “We must not politicize technical issues,” the minister said.

PIC chairwoman Maha Mulla Hussein said that Kuwait will not be required to pay a penalty of up to $2.5 billion if the Kuwaiti government rejects the deal before the start of next month, when the deal becomes officially effective. Olaim however made no direct reference to calls by MPs on the government to scrap the deal.

On Sunday, the Popular Action Bloc said it will grill the prime minister if the government does not scrap the deal before January 1 in order to avoid paying the penalty. The bloc said that the value of the deal was highly exaggerated since the market value of Dow Chemical dropped from $51 billion in 1997 to around $17 billion currently.

Islamist MP Khaled Al-Sultan yesterday charged that the plants Dow is contributing to the deal “are old and operate with outdated technology”, saying the decision to enter the joint venture “is not a wise investment”. Another Islamist MP, Abdullatif Al-Ameeri, said the deal is shrouded in many suspicions, adding that it is not feasible to buy 40-year-old plants in Europe and the United States when there are new plants in Asia. Ameeri said the internal rate of the project was initially set at 8-10 percent and after the global crisis it will drop sharply to around five percent. The lawmaker alleged that Dow Chemical offered the partnership to a neighboring country for $4-5 billion but it was offered for $9 billion to Kuwait.

MP Mohammad Al-Obeid said there are major problems and loopholes in the mechanism of the government’s dealing with public fund-related issues, such as the mystery surrounding the fourth refinery project, the Amana company and the K-Dow deal. The MP said the K-Dow deal raises several question marks about its economic feasibility and its importance while the world is experiencing a troubled financial situation. Al-Obeid questioned the wisdom of injecting $7.5 billion into the petrochemicals industry which is currently suffering from severe crises because of plummeting oil prices. He said that he would submit a parliamentary question about KPC’s investment strategy in the petrochemicals industry and its economic feasibility, as well as the legal procedures in the K-Dow project.

Fellow MP Musallam Al-Barrak said the only person who can save Kuwait and Kuwaiti people’s money from the K-Dow deal is the premier, who has the authority to do so. He said that partnership with this company would be harmful, adding that its factories were over 20 years old. Al-Barrak questioned the abnormally fast rate at which the high-ranking oil officials have been conducting the deal, with meetings being held between them daily, saying that this confirms that the K-Dow project is going ahead without a ny regard of the Cabinet.

Meanwhile, the Fatwa and Legislation Department has announced that the contract is unique and unfair to Kuwait. It said that whoever conducted the negotiations on KPC’s behalf did not have sufficient knowledge of contractual law and that this should not have been the case, particularly in such a major and important deal. The department has asked that the contract be systematically reviewed before coming into effect since its current conditions are unfairly harsh on Kuwait. It also said that that choice of timing for signing the contract was wrong, given the economic downturn which all companies are currently suffering the effects of.

The deal will be final in eight days. It has passed an exhaustive process for approval and despite a few lawmakers who can get the press’s ear, nothing from anyone with authority to actually do anything ought to lead investors to think other wise.

It is akin to Rep. Elijah Cummings going on CNBC and bitching about the AIG (AIG) situation and making threats. Ok, thank you for your opinion now go sit down please. Unless your name end in Frank or Dodd in the House of Representatives, or you are the head of a Committee, your opinion and threats are ,well, just more noise.

Let’s do a worse case scenario. Say it doesn’t. Dow gets the $2.5 billion breakup fee, calls off the Rohm and Haas (ROH) deal, pays them the $400 million breakup fee and walks with $2.1 billion. Now, with the company currently valued at $17 billion. Dow could take that money and just buyback 12% of the stock. Is that so bad? I don’t think so.

There will be demand for these assets. There is no rule, that if thus deal dies, there will not be another one 6 months from now.

Disclosure (“none” means no position):Long DOW
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Sears, ASSHAT, Frank, Kuwait

– Seems more people may be catching on

– Funny

– Is he nice to anyone?

– A week to go

Disclosure (“none” means no position):
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