DOW to Claim $2.5B in Damages - Analyst Blog

The Dow Chemical Company ( DOW ) is expected to claim $2.5 billion in compensation for a scrapped joint venture in Kuwait. However, the compensation is subject to the verdict of the court, which is currently reviewing whether the Gulf state has breached the contract or not

On December 1, 2008, Dow Chemical and Petrochemical Industries Company, a wholly owned subsidiary of Kuwait Petroleum Corporation (KPC ), signed a $17.4 billion Joint Venture Formation Agreement regarding the formation of K-Dow Petrochemicals, a 50:50 joint venture, which was touted to emerge as the leading global supplier of petrochemicals and plastics.

It was expected that the new company would be operational by January 1, 2009, with closing on that date as articulated in the December 13, 2007MOU (Memorandum of Understanding) announcement.

However, the deal was scrapped at the eleventh hour by the Kuwaiti government without any prior notice. To make matters worse, Petrochemical Industries Co was also set to pay Dow $7.5 billion for its stake in the project.

The main reason cited for the termination of the deal was the plunge in oil prices from the rich levels that they were trading when the K-Dow Petrochemicals joint venture was announced.

In October 2011, Dow released its third-quarter 2011 results. Dow earned 69 cents per share in the third quarter of 2011, ahead of theZacks Consensus Estimate of 64 cents as well as last year's 45 cents. However, including one-time charges, the company earned 62 cents per share compared with 54 cents in the year-ago quarter.

Quarterly revenues jumped 17% year over year to $15.1 billion and were above theZacks Consensus Estimate of $14.7 billion, driven by double-digit gains across all operating segments and geographic areas, with the largest growth in Latin America (21%) and Europe, Middle East and Africa (EMEA ) (19%). In the emerging geographies, sales reached $5 billion, a new quarterly record for the company.

Dow did not provide any financial guidance. However, Dow anticipates demand to improve further, especially in Asia, backed by the global economic recovery. The US and European markets have also started showing signs of improvement. Dow is also optimistic on the major consumer-markets, including electronics, coatings, automotive and packaging. However, construction markets are expected to remain weak.

DOW faces stiff competition from EI DuPont deNemours & Co . ( DD ).

Currently, Dow has a short-term (1 to 3 months)Zacks #4 Rank (Sell) and a long-term Neutral recommendation.

DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report

DOW CHEMICAL ( DOW ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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