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Dow Awarded $2.16 Billion From Kuwait Over Aborted Deal

Dow Chemical Co., the largest U.S. chemical maker by sales, said an arbitration panel ruled Kuwait must pay $2.16 billion in damages because it canceled a 2008 agreement to buy a stake in the company’s plastics business.

The award by the London-based International Court of Arbitration doesn’t include costs or interest and is final and binding, Midland, Michigan-based Dow said today in a statement. The timing of the payment and other terms of the agreement are confidential, Nancy Lamb, a Dow spokeswoman, said in an e-mail.

“Anything north of $1 billion is a pleasant surprise,” said Hassan Ahmed, a New York-based analyst at Alembic Global Advisors. “I don’t think the market was giving Dow any credit for an imminent settlement.”

Kuwait’s Petrochemical Industries Co., under pressure from lawmakers, canceled a contract to form a 50-50 venture with Dow’s plastics unit in December 2008. The failure of the so- called K-Dow venture deprived Dow of a $9 billion payment during the global financial crisis, almost derailed its 2009 purchase of Rohm & Haas Co. (DOW) and forced the company’s first dividend cut.

“We are studying what legal action is available to pursue,” Petrochemical Industries Chairwoman and Managing Director Maha Mulla Hussein said in a telephone interview. The company is a unit of state-owned Kuwait Petroleum Co.

Dow rose 3.4 percent to $31.55 at the close in New York.

Special Dividend?

Dow’s award is more than twice what he expected and represents $1.35 a share after estimated legal fees and taxes, Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a note. Alexander, who recommends holding the shares, raised his 12-month target price to $33 from $32.

The win boosts the credibility of Dow Chairman and Chief Executive Officer Andrew Liveris because he pursued compensation for the aborted deal, Ahmed, who recommends buying Dow shares, said in a telephone interview.

Dow may use the proceeds to refinance its higher interest debt or buy back preferred stock, Ahmed said. Dow sold $3 billion of preferred shares yielding 8.5 percent a year to Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) to help pay for Rohm & Haas. Lower interest costs would immediately boost earnings and Dow may also pay a special dividend, he said.

It’s not yet clear how Dow will use the funds, Lamb said. The company is focused on using cash to reward shareholders, pay down debt and invest in growth projects, she said.

‘Move Forward’

Dow cut its quarterly dividend to 15 cents a share from 42 cents in February 2009 following the collapse of the K-Dow deal. Dow has since raised the payout to 32 cents a share.

Petrochemical Industries was to have paid $7.5 billion for its stake in K-Dow, and the venture was to have paid each partner $1.5 billion. Dow still has four joint ventures with Kuwait that predate K-Dow, including Equate Petrochemical Co. and MEGlobal, which make ethylene glycol, a chemical used in antifreeze and polyester.

“We remain focused on continuing to move forward with our transformation and profitable business partnerships -– both in Kuwait and around the world,” Liveris said in the statement.

Law firm Shearman & Sterling LLP represented Dow in the arbitration.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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