Dow, KPC lower value of planned joint venture

NEW YORK/KUWAIT (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 a looming 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 pre-tax proceeds for its assets and will have a 50 percent stake in the joint venture with KPC's Petrochemical Industries Co. 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.

Dow Chemical shares were down about 0.6 percent at $18.44 in late-morning trading on the New York Stock Exchange.

Earlier on Monday, a source, who declined to be named

confirmed to Reuters that PIC would pay about $7.5 billion for its 50 percent stake in the joint venture.

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 January 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 the U.S. Federal Trade Commission and the European Commission, and also received clearance from the U.S. Committee on Foreign Investment in the U.S., but the deal 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.

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.

Earlier this month, Dow said it was likely to announce a restructuring of operations before the end of the year and warned that its current trend rate indicated that shipment volumes would be down 10 to 20 percent over the next few quarters.

(Editing by Dave Zimmerman)