Dow Chemical is pursuing legal options against Kuwait for pulling out of their multibillion-dollar joint venture. In late December, the Kuwaiti government called off a $17.4 billion deal to create the world’s largest maker of polyethylene, a commodity heavily used in consumer products. It said the plunge in oil prices and downturn in the global economy made the venture too risky.
Dow is seeking more than $2.5 billion in damages, according to a report by Reuters, from Kuwait’s Petrochemical Industries Company (PIC) for backing out of its agreement. It’s claimed that PIC is in breach of a contract between the parties. Dow says it must take action to protect the interests of the company and the shareholders.
Dow also said it was ready to go ahead with the Kuwaiti deal if PIC remedies the breach of contract. More than just another deal for Dow, the sale of 50.0% of its plastics business to a Kuwaiti state company was part of its strategy to reduce its exposure to the cyclical nature of the commodity chemicals business. Though Dow’s management is insisting they’re committed to a joint venture commodity business, it will be difficult for them to find a deal like the kind they had with the Kuwait company which had very attractive multiples.
Breaking off the deal also potentially upset Dow’s plans to buy rival Rohm & Haas, for which it paid a high multiple, and was integral to its strategy to reduce its exposure to the commodity chemicals business. Dow was planning to use part of the proceeds from the deal to finance its $15.3 billion acquisition of the Philadelphia-based specialty chemicals company. Under the joint venture agreement, PIC was to pay Dow $7.5 billion.
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