UPDATE 3-Dow, KPC lower value of planned joint venture

(Adds CEO comments, details, updates share price move)

By Euan Rocha and Ulf Laessing

NEW YORK/KUWAIT, Dec 1 (Reuters) - The value of K-Dow Petrochemicals, the planned joint-venture between Dow Chemical (DOW.N) and Kuwait Petroleum Corp, has been cut by more than 8 percent to about $17.4 billion in light of a sharp slowdown in global demand.

Dow and other chemical makers around the globe face one of the worst slumps ever in chemical demand, with recession in most developed countries and a sharp slowdown in emerging economies that have been the main drivers of revenue growth for the sector in recent quarters.

Dow, the largest U.S. chemical maker, is contributing a portion of its assets to the joint venture, which will make chemicals used in products ranging from plastic bottles and compact disks to computers and agricultural compounds.

The original value of the deal was about $19 billion.

The total enterprise value of the Dow businesses going into K-Dow is now about $17.4 billion. This equates to $8.72 billion for each shareholder. The final proceeds of the transaction include usual adjustments of $1.2 billion, related to working capital and net debt, the companies said on Monday.

Midland, Michigan-based Dow will receive $9 billion in pretax proceeds for its assets and will have a 50 percent stake in the joint venture with KPC's Petrochemical Industries Co (PIC). Dow initially expected proceeds of $9.5 billion from the deal, when it was announced a year ago.

PIC will pay Dow $7.5 billion for its stake in the venture, while K-Dow itself will pay both Dow and PIC a special cash distribution of $1.5 billion each, once the deal has closed, the companies said in a joint statement.

Based on the current deal structure, PIC will make a net payment of $6 billion, after adjusting for the special cash distribution from K-Dow.

K-Dow is currently marketing about $4 billion of debt, $3 billion of this will be used to pay the special cash distribution to both companies.

Analysts noted that the debt burden that K-Dow will have to bear from inception will be reduced by the fact that Dow and PIC are wrapping two of their other joint ventures under the K-Dow umbrella.

MEGlobal, which makes ethylene glycol and Equipolymers, and is a supplier of PET resins will be made a part of K-Dow. This will raise the expected annual sales from K-Dow to $15 billion, from an earlier estimate of $11 billion.

Dow and KPC said last week they were still in talks on the deal after Kuwait's state news agency, KUNA, quoted KPC Chief Executive Saad al-Shuwaib as saying the agreement was under review due to the global financial crisis.

The two companies said the new company will begin operations no later than Jan. 1 and market petrochemicals and plastics such as polyethylene, polypropylene and polycarbonate.

The deal, part of Dow's strategy to reduce its exposure to the cyclical nature of the commodity chemicals business, was announced in December 2007.

The K-Dow deal has received regulatory approvals from in the U.S. and Europe, but it remains subject to customary closing conditions.

The deal with KPC is especially significant for Dow, as it plans to use the proceeds from it to repay a large part of the $13 billion in debt it will have to shoulder once its acquisition of Rohm and Haas ROH.N closes in early 2009.

In July, Dow said it would acquire its rival Rohm and Haas for $15.3 billion in a move to broaden its specialty product offerings.

In light of the lower deal value for K-Dow, some analysts and investors are questioning the price that Dow is paying for Rohm and Haas.

However, Dow's Chief Executive Andrew Liveris reiterated that the deal value for Rohm and Haas will stand, adding that the deal would revamp Dow's asset portfolio.

Analysts were concerned that a delay in the closing of the joint venture, or a significant reduction in the value of the deal would hurt Dow, especially given its increased debt burden following the close of the Rohm and Haas deal.

Last month, Dow warned that its current trend rate indicated that shipment volumes would be down 10 to 20 percent over the next few quarters.

In the next two weeks, Dow will outline plans to shutdown a number of high cost facilities primarily, said Liveris, adding that the chemical maker will also significantly lower its 2009 and 2010 capital expenditure budgets from 2008 current levels.

However, Liveris reiterated that the company will not lower its quarterly dividend, which at Dow's current share price offers a yield of 9.4 percent.

Dow Chemical shares closed down 3.3 percent at $17.93 on the New York Stock Exchange. (Editing by Dave Zimmerman, Bernard Orr)