Andrew Liveris Comments on Dow - PIC Joint Venture Agreement
K-Dow Signing of JVFA
Prepared Remarks
Conference Call/Webcast With Investors, Financial Analysts and the Media
December 1, 2008 – 10:00 a.m. EST
Howard Ungerleider, Vice President, Investor Relations:
Good morning everyone and welcome. As usual, we’re making this call available to investors and the media via Webcast. This call is the property of The Dow Chemical Company. Any redistribution, retransmission, or rebroadcast of this call in any form without Dow’s express written consent is strictly prohibited.
On the call with me today is Andrew Liveris, Dow’s Chairman and Chief Executive Officer, and Geoffery Merszei, Dow's Chief Financial Officer.
As you know, some of our comments today may include statements about our expectations for the future. Those expectations involve risks and uncertainties.
We can’t guarantee the accuracy of any forecasts or estimates, and we don’t plan to update any forward-looking statements if our expectations change.
In addition, some of our comments may reference non-GAAP financial measures.
If you’d like more information on the risks involved in forward-looking statements, or reconciliation to the most directly comparable GAAP financial measure, and other associated disclosures, please see our SEC filings.
Now, let me hand it over to Dow's chairman and CEO, Andrew Liveris.
Andrew Liveris, Chairman and Chief Executive Officer:
It was less than a year ago that I stood in front of many of you and announced what we viewed as a critical step in Dow’s transformation – our MOU with PIC to form a leading global petrochemical company. We told you we would have the deal done by the end of 2008.
And we have done just that.
I am happy to share with you this morning that we have signed the binding, definitive agreement to form K-Dow Petrochemicals.
As many of you know, K-Dow will be a 50:50 joint venture with Petrochemical Industries Company of Kuwait. And it is expected to begin operating as a new company no later than January 1st. This company will be the leading global supplier of petrochemicals and plastics. In fact, if K-Dow were a publicly-held company it would rank in the Fortune 200.
The formation of K-Dow Petrochemicals is a critical milestone in our transformational strategy. This is a giant step forward in strengthening our Basics businesses through joint ventures, reducing our cyclicality, our capital intensity, and freeing up $9 billion in pre-tax cash to invest in our Performance businesses to deliver on our strategy of becoming an earnings growth company.
Speaking of growth, 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 access to low cost and competitive petroleum feedstocks. It will also benefit from Dow’s petrochemicals and plastics leadership, including our number one position in polyethylene.
As we have consistently said, our strategy has been to put ourselves in a position to preferentially invest in our performance businesses.
The formation of our K-Dow joint venture has set the stage for us to do exactly that. Our acquisition of Rohm and Haas, which we announced in July, will significantly move the needle on our portfolio towards performance products and advanced materials. This acquisition remains on track to close in early 2009.
We have reached or neared completion on both of these deals – two game-changing transactions that are critical to the transformation of The Dow Chemical Company.
Now, when we said we would close K-Dow by year end, no-one anticipated the global melt-down that would occur in September and October. This deal has closed in an economic environment that none of us have seen in our lifetime. Given this melt-down, it was natural for our partners and ourselves to re-visit the economics of the deal, and extract a win-win. I believe we have done that, as do our partners.
The total enterprise value for the transaction is now approximately $17.4 billion. This represents a multiple of 7.1 on the 2006 EBITDA for the businesses going into K-Dow. A multiple that is not significantly different from the 7.75 we announced in December of 2007. In addition, we expect to yield gross cash proceeds of approximately $9 billion, not too different from the $9.5 Billion we announced at the same time.
I’d like to walk you through how we get to that number.
Start with the enterprise value of approximately $17.4 billion. Our 50% share is roughly $8.7 billion. Subtract approximately $1.2 billion related to usual adjustments in working capital and net debt and you are at $7.5 billion. And in light of our current economic conditions, what is truly remarkable is that at closing, K-Dow Petrochemicals is expected to issue a special cash distribution of $1.5 billion to each shareholder – bringing Dow’s total gross cash proceeds to approximately $9 billion.
Our Kuwaiti partners are out of pocket a net $6.0 Billion as they of course will receive their special cash distribution of $1.5 Billion as well.
So although the enterprise value is slightly different than the number we have shared with you previously, the cash proceeds reflect an adjustment of only about 5%.
And in this environment cash is king – a true win for Dow and for our shareholders.
The deal is also a win for our partner in many ways.
Our relationship with the Kuwaiti’s goes back to the early ‘90s. We respect them as long-standing and valued business partners. In fact, this is our fifth joint venture together. Speaking of our many joint ventures, we are also announcing today that two of these existing 50:50 joint ventures, MEGlobal and Equipolymers, will become a part of K-Dow. With the inclusion of these businesses, K-Dow will have estimated sales of approximately $15 billion.
The K-Dow joint venture will not only diversify Kuwait’s national economy, but it will position Kuwait as a leader on the global business stage. Through the K-Dow joint venture, KPC will enter a new arena of petrochemical products based on Dow’s leading global technologies. Our partner will be able to expand and diversify its international petrochemicals presence, creating new jobs and growth over the long term. 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 would create if they stayed a part of Dow.
I’d like to finish my comments today by reflecting on where we started. Our goal was clear – in order to provide maximum value to our shareholders, we needed to successfully transform our 111 year old enterprise into an earnings growth company.
And that is exactly what we are doing.
Today we have delivered yet another commitment towards our goal.
Today we delivered a binding and definitive agreement with our partner, PIC, to create K-Dow – a global leader in the petrochemicals industry, with the number one plastics franchise in the world. This is truly a partnership for the ages.
Today we report that we are solidly on track to complete our acquisition of Rohm and Haas early next year, forming a leading global player in performance products and advanced materials.
Finally, we continue to remain relentlessly focused on financial discipline. These times certainly call for nothing less. We are absolutely committed to matching our cost structure with the new global economic realities. You’ll be hearing more from us on that in the coming weeks.
I am happy to take your questions now.
Howard Ungerleider, Vice President, Investor Relations:
Thanks, Andrew. That wraps up our prepared remarks. For your reference, a copy of these remarks will be posted on Dow’s website later today.
Now we’ll move on to your questions.
Before we do, though, I’d like to remind you that my comments on forward-looking statements and non-GAAP financial measures apply to both our prepared remarks and to anything that may come up during the Q&A.
Operator, would you please explain the Q&A procedure?
We’d like to thank you for joining us on this call. Our team looks forward to speaking with you again soon.
Good-bye.
