Chemical and agricultural products manufacturer Dow Chemical Co. (DOW) said on Monday that it has signed binding agreements for the formation of K-Dow Petrochemicals, a joint venture with Petrochemical Industries Co., a wholly-owned subsidiary of Kuwait Petroleum Corp. The company noted that the 50:50 joint venture will be a supplier of essential petrochemicals and plastics that will be used in consumer products, automotive parts and drug processing. Confirming earlier media reports, Dow Chemical has accepted a lower price for a 50% stake in the joint venture due to the global recession and lower oil prices.
The Midland, Michigan-based Dow Chemical noted that the total enterprise value of K-Dow is about $17.4 billion, which equates to $8.72 billion for each shareholder. The company said that the final proceeds of the transaction include usual adjustments of $1.2 billion, related to working capital and net debt. On closing of the transaction, each shareholder plans to receive a $1.5 billion special cash distribution that will be paid by K-Dow.
In December 2007, Dow agreed to sell its plastics assets for $9.5 billion to Petrochemical Industries Co. or PIC, to form a joint petrochemicals venture. As per the joint venture, PIC will acquire a 50% interest in five of Dow's global businesses having an aggregate value of $19 billion. In turn, Dow would gain greater access to emerging market growth and petrochemical materials used in its products.
Dow said on Monday that it now expects to receive $9 billion in total pre-tax proceeds related to the transaction, down from the previously agreed $9.5 billion. This includes the cash distribution of $1.5 billion from K-Dow. Reports earlier on Monday said that Dow agreed to a lower price on the deal as the global recession has reduced the value of its plastics unit while falling oil prices have hurt Kuwait's economy.
The gross payment by PIC for the joint venture is expected to be about $7.5 billion, with a net payment of $6 billion that includes the cash distribution from K-Dow.
The new company is expected to commence operations no later than January 1, 2009, with closing on that date as articulated in the MOU announcement in December 2007. K-Dow will manufacture and market polyethylene, ethyleneamines, ethanolamines, polypropylene and polycarbonate, and will also license polypropylene technology and market related catalysts.
Polyethylene 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. Polypropylene is a versatile plastic used in fibers, packaging films, non-wovens, durable goods, automotive parts and consumer applications. Polycarbonate is an engineering thermoplastic used in applications such as optical media, electrical and lighting.
The joint venture is part of Dow's efforts to reduce its exposure to the cyclical nature of the commodity chemicals business. The company and other chemical makers are facing a slump in global demand for chemicals. In November, Dow said that it would take bold and proactive measures, including options to reduce costs and eliminate or defer capital spending, to manage its transformation through the challenging times.
Dow intends to use proceeds from the deal to repay a large part of the debt that it will have to repay to close the acquisition of Rohm and Haas Co. (ROH), a provider of specialty materials, in early 2009.
Dow and PIC also announced on Monday that two of their existing 50:50 joint ventures would be moved into K-Dow. These include MEGlobal, a producer of ethylene glycol, and Equipolymers, a supplier of PET resins. Dow noted that K-Dow will have estimated sales of $11 billion and with the addition of the two joint ventures, K-Dow will have total annual revenue of $15 billion.
Andrew Liveris, chairman and CEO of Dow Chemicals said, "The formation of K-Dow Petrochemicals will be a critical milestone in Dow's transformation into an earnings growth company. This is a giant step in our strategy of growing our Basics businesses through joint ventures, reducing our capital intensity, and freeing up $9 billion in pre-tax cash proceeds to invest in our Performance businesses."
Liveris added, "We have effectively set the stage for our next major landmark - completing the proposed acquisition of Rohm and Haas in early 2009."
Maha Mulla Hussain, Chairman and Managing Director of PIC, said, "The K-Dow joint venture will not only diversify Kuwait's national economy, but it will also position Kuwait as a leader on the global business stage."
The transaction has received regulatory approvals from the U.S. Federal Trade Commission and the European Commission, in addition to clearance form the U.S. Committee on Foreign Investment in the U.S.
In July, Dow and PIC named James Fitterling as the CEO of K-Dow and also announced the selection of Michigan as the location of the world headquarters for the joint venture.
Dow also announced in July that it agreed to acquire all outstanding shares of Rohm and Haas for $78 per share, or $18.8 billion in cash. The proposed acquisition of Rohm and Haas will make Dow the world's leading specialty chemicals and advanced materials company. The merger is expected to close in early 2009, pending regulatory approvals.
In Monday's regular trading session, DOW is trading at $18.28, down $0.27 or 1.46% on a volume of 4.77 million shares. The stock has been trading in a range of $16.41-$45.50 in the past 52 weeks.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.