A multibillion-dollar joint venture by Dow Chemical and a Kuwaiti company fell victim to the financial crisis and the collapse of oil prices when the Kuwaiti government said Sunday that it was backing out of the venture in the face of opposition in Parliament.
The government of the prime minister, Sheik Nasser al-Mohammad al-Ahmad al-Sabah, said in a statement that it had decided to cancel an agreement to create K-Dow Petrochemicals, a venture between the Kuwaiti company, Petrochemical Industries, and Dow Chemical that was to be the world’s largest maker of polyethylene.
The collapse of the deal could complicate matters for Dow and its chief executive, Andrew Liveris. He had hoped to use the proceeds to finance his $15 billion acquisition of Rohm & Haas, a specialty chemicals company based in Philadelphia. Shares of Dow, which is based in Midland, Michigan, and is the biggest U.S. maker of chemicals, have fallen 51 percent in 2008, and the company might find lenders reticent about financing the Rohm & Haas deal in the current business environment.
Like its rivals BASF and DuPont, Dow has been sharply curtailing output in the face of what is shaping up as one of the worst downturns for the chemicals business on record, with prices for some products falling as much as 50 percent. Liveris said in November that he expected “a pretty protracted global recession, probably going into 2010.”
Dow Chemical said in a statement Sunday that it had been “verbally informed” of the Kuwaiti decision and that it was “extremely disappointed.” Dow said it was evaluating its options, but that it remained committed to its strategy in the Middle East. Executives at Dow Chemical’s headquarters did not immediately return calls seeking comment.
The Kuwaiti cabinet said that as a result of the global economic upheaval and falling oil prices, there could be “unpredictable consequences to any global firm,” and that the Dow deal would bring an unacceptably high risk. It called on the government’s Supreme Petroleum Council to “take the necessary legal steps toward implementation of the cancellation without harming the interests of the state.”
The K-Dow deal, which was to have an enterprise value of $17.4 billion, was announced late last year, but it was only four weeks ago that the two companies signed an agreement to finalize the alliance, under which Dow was to sell 50 percent of its plastics business assets to Petrochemical Industries for $9.5 billion and combine some other units. It would have been Kuwait’s largest overseas deal.
A year ago, the main problem many oil producers faced was how to invest windfall profits as prices soared. But with oil prices in a long skid and the global economy tanking, Kuwaiti lawmakers had become increasingly critical of the deal. Some lawmakers had threatened to embarrass the prime minister, a nephew of the Kuwaiti emir, or ruler, in Parliament with tough questioning if the project went ahead over their objections, a move that might have led to a political crisis.
Oil prices topped out in July above $147 a barrel, but have since plummeted as the global economy has slowed. U.S. crude futures closed Friday in New York at $37.71 a barrel.
Petrochemical Industries, based in Safat, Kuwait, is a unit of the state-owned Kuwait Petroleum Corp. Like other oil producers, Kuwait has been seeking to reduce its reliance on pumping oil out of the ground and add value to its exports by processing more petrochemicals at home. Maha Mulla Hussain, the Petrochemical Industries chairwoman, had argued that a deal would help to diversify the country’s economy.
(International Herald Tribune)