NEWS OF THE W EEK
KUWAIT CANCELS DEAL WITH DOW UNRAVELED: Observers wonder
whether Dow can complete Rohm and Haas purchase
NEWSCOM
L
Liveris
ESS THAN A MONTH after renegotiating a massive joint venture with Dow Chemical and signing a binding deal, the Kuwaiti government has changed its mind and canceled the agreement. The cancellation calls into question the viability of Dow’s planned purchase of Rohm and Haas. On Dec. 1, 2008, Dow and Kuwait’s Petrochemical Industries Co. unveiled a reworked agreement for PIC to purchase half of Dow’s commodity chemicals and plastics business. Instead of the $9.5 billion it was originally to pay, PIC would fork over $7.5 billion. In addition, upon completion of the deal, the new venture, which would have been called K-Dow, was to pay a $1.5 billion special dividend to each of the partners. The resulting proceeds for Dow would have been $9 billion, and PIC’s net payment would have been $6 billion. All of that is out the window now that Kuwait’s Supreme Petroleum Council has canceled the merger.
FERTILIZER MAKERS CUT PRODUCTION AGRICULTURE: Farmers are postponing
nutrient application until spring
F
P OTASHCO RP
PotashCorp runs the world’s largest potash mining operation in Saskatchewan.
OR MUCH OF 2008, North American fertilizer companies seemed immune to the gathering global economic crisis. Now, however, they are following their peers in the broader chemical industry and announcing production cuts. Companies are reporting that lower sales caused both a buildup of inventories and price declines in the final quarter of 2008. PotashCorp, Terra Industries, Agrium, Mosaic, and Intrepid Potash say they will produce fewer tons of nitrogen, potassium, and phosphate until the second quarter of 2009, when they expect demand to increase again. “The late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties resulting from reductions in global crop and nutrient prices, has impacted fall nutrient applications,” Agrium CEO Michael M. Wilson explains. WWW.CEN-ON LI NE .ORG
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“Dow is extremely disappointed with the decision by the Kuwaiti government and is in the process of evaluating its options pursuant to the joint-venture formation agreement,” the company says in a statement. The merger contract caps damages at $2.5 billion in the event the deal doesn’t close. To Dow CEO Andrew N. Liveris, the transaction was as good as done less than a month ago. “The deal has closed in an economic environment that none of us have seen in our lifetime,” he told analysts at the time (C&EN, Dec. 8, 2008, page 7). Analysts are surprised by the cancellation and wonder whether Dow will now complete its $18.8 billion purchase of Rohm and Haas, since the cash from PIC was meant to help pay for that acquisition. The Kuwaiti decision is “a huge negative for Dow shareholders,” Citi Investment Research stock analyst P. J. Juvekar wrote to clients. “Dow should be looking to protect its shareholders by cutting the Rohm and Haas deal at a lower price or walking away from the deal by paying a breakup fee.” He notes that Hexion Specialty Chemicals walked away from its purchase of Huntsman Corp. by paying $1 billion. According to its contract, Dow would owe Rohm and Haas a $750 million breakup fee if the merger is blocked by regulators or the agreement expires. In a statement, Rohm and Haas notes that the Kuwaiti transaction “is not a closing condition” for its merger with Dow and that it will work diligently to complete the deal.—ALEX TULLO
Mosaic reduced its potash production last quarter by 1 million tons and expects to continue producing at the lower rate if the poor market conditions persist. Terra has idled ammonia facilities in Woodward, Okla., and at two locations in the U.K. where it operates its part of the GrowHow joint venture. And Intrepid Potash has reduced its contract labor force at potash mines in Carlsbad, N.M. Similarly, PotashCorp will curtail potash production in Saskatchewan by 2 million tons annually beginning this month. The firm has revised its 2008 full-year earnings expectation downward by 10%. Agrium has also idled production in Alberta and at other plants in North America. The company expects operating results will be down by as much as 15% from prior earnings forecasts. Fertilizer company executives emphasize their view that the softening of demand is temporary. “The world’s growing population still needs to eat, so although purchases of vital crop nutrients may be delayed …, they can’t be avoided like most discretionary purchases,” Mosaic CEO James T. Prokopanko says in a statement. Citi Investment Research analyst Brian Yu agrees that agricultural fundamentals are strong. He says the slow sales are due to farmers “tactically waiting for fertilizer prices to settle after a sharp run-up through the third quarter of 2008.” Yu points out that grain inventories are still historically low and says food prices will increase further if crop yields or acreage falls short of expectations.—MELODY VOITH
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