Dow Chemical May Sell Units With $6 Billion Revenue

Dow Chemical Co. may sell three businesses with $6 billion in combined revenue if the largest U.S. chemicals maker fails to improve profit margins.

The underperforming units are epoxy, building and construction products outside of North America, and chlorine derivatives. Midland, Michigan-based Dow is exploring all options for those businesses, including creating joint ventures or selling them entirely, Chairman and Chief Executive Officer Andrew Liveris said today on an earnings conference call.

“We see the need for more dramatic interventions,” Liveris said.

Dow, DuPont Co. and Ashland Inc. are among chemical companies considering or planning asset sales as they try to unlock growth amid a tepid global economy. The Dow segments earmarked for possible divestment are in slow-growing markets and face margin pressure, Dow said. Epoxy, used to make plywood, is facing “tough competition” from China, Liveris said.

The company has previously announced plans to sell by year-end three other units with a total of $1.5 billion of revenue: plastics additives; polypropylene licensing and catalysts; and fumigants.

“We have said for about a year that this is the type of economy where self-help is important and critical,” Liveris said in a phone interview earlier today.

Dow rose 1.8 percent to $34.99 in New York. The company posted second-quarter earnings and sales that beat analysts’ estimates as stronger transportation and packaging demand helped its plastics unit.

China Strength

Net income climbed to $1.87 a share from 55 cents a year earlier, the company said in a statement. Excluding an arbitration award and other one-time items, profit was 64 cents, beating the 62-cent average of 17 estimates compiled by Bloomberg. Sales were little changed at $14.6 billion, topping the $14.5 billion average estimate.

Cost cuts and revenue gains in China and other emerging markets helped drive earnings, Liveris said in the interview.

“Companywide volume growth in emerging markets was far stronger than we have been hearing,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who recommends buying Dow shares, said by phone yesterday.

Dow is investing $4 billion to expand production in the U.S., where an abundance of natural gas from drilling in shale formations has made U.S. plastics competitive with the Middle East. At the plastics unit, which uses natural gas liquids as a raw material, earnings before interest, taxes, depreciation and amortization rose 33 percent to $1.01 billion, the highest in eight years.

Agriculture Ebitda fell 5.5 percent even as sales gained, partly because of the expense of introducing four new products, Liveris said in the interview.

Dow received $2.19 billion in May from Petrochemical Industries Co. of Kuwait as compensation for the cancellation of a plastics joint venture four years ago. Dow used the after-tax proceeds to help pay down debt to 36 percent of total capitalization, Liveris said. The company plans to focus on retiring high-interest preferred shares, he said.

(Updates with closing share price in seventh paragraph.)
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