Dow Chemical Co. (DOW) said its prospects have improved for redeeming $4 billion in preferred stock held by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and Kuwait’s sovereign wealth fund after interest rates climbed.
“As interest rates tend to go upward, the potential premium that we would need to pay to retire those decreases,” Dow Chief Financial Officer Bill Weideman said today on a conference call. “Things are moving in the right direction from that standpoint. You can be rest assured that we’ll be looking at different opportunities there.”
Dow Chairman and Chief Executive Officer Andrew Liveris has been seeking to reduce debt after receiving $2.19 billion from Petrochemical Industries Co. of Kuwait as compensation for the cancellation of a joint venture more than four years ago. Midland, Michigan-based Dow pays an 8.5 percent annual dividend on preferred shares it sold to help fund the 2009 purchase of Rohm & Haas Co.
Redeeming those is a “top priority for us,” Weideman said. “As we’ve said all along, timing’s important on this.”
Buffett, 82, didn’t return a message left with an assistant at Omaha, Nebraska-based Berkshire. An attempt to reach the Kuwait Investment Authority for comment outside of normal business hours wasn’t successful.
Interest rates have climbed since Federal Reserve Chairman Ben S. Bernanke indicated in May that the central bank may begin tapering some of its efforts to stimulate the economy. Ten-year Treasury yields were about 2.57 percent today, compared with 1.67 percent at the end of April.
PIC canceled a joint venture with Dow in 2008, depriving the chemical maker of a $9 billion payment during the financial crisis. The scuttled venture almost derailed the Rohm & Haas deal and prompted Dow’s first dividend cut.
The chemical maker said in July 2008 it would sell $4 billion of preferred shares -- $3 billion to Berkshire and $1 billion to Kuwait’s sovereign wealth fund -- to help fund its purchase of Rohm & Haas. In addition to the dividend, the securities also gave Berkshire the right to purchase 72.6 million shares of Dow common stock for $41.32 each.
Starting in April 2014, Dow has the right to convert the preferred investment into common stock if its shares traded above $53.72 for any 20 trading days in a consecutive 30-day window. The chemical maker rose 1.8 percent to $34.99 at 4:15 p.m. in New York.
Dow said today that second quarter net income climbed to $1.87 a share from 55 cents a year earlier as stronger transportation and packaging demand helped its plastics unit while emerging-market sales volume rose. Excluding the arbitration award and a loss from early debt repayment, profit was 64 cents, beating the 62-cent average of 17 estimates compiled by Bloomberg.
Buffett, Berkshire’s chairman and CEO, has been winding down other crisis-era investments. Earlier this year, he agreed to settle warrants he received in Goldman Sachs Group Inc. and General Electric Co. that gave him the option to buy common stock in both.
Berkshire committed a combined $8 billion to the companies in 2008 to help them shore up capital and restore market confidence after Lehman Brothers Holdings Inc. collapsed. Both repaid the money at a premium in 2011.
A surging equity portfolio and higher earnings at Berkshire’s operating businesses, from railroad Burlington Northern Santa Fe to insurer Geico, have boosted the company’s stock by 31 percent this year. Class A shares advanced 0.5 percent today.