Dow Sells Refinery

Dow Chemical Co. (DOW) completed the sale of its Netherlands-based crude oil refinery to Paris-based Total SA (TOT), one of the six major global oil companies, for about $800 million. The refinery is a key supplier of refined products, including diesel, to the European market. The move is in line with Dow’s strategy of divesting non-core assets. The deal received regulatory approval last month.

The Midlands, Michigan-based chemical company stated that the divestiture will increase its financial flexibility, improve cash flow and will help pay down debt. The company plans to use the proceeds from the deal to pay down debt, which was raised for the Rohm and Haas acquisition.

The Rohm and Haas acquisition increased Dow’s net debt from $8 billion to $22 billion in the first half of 2009. This resulted in a significant net cash deficit of $19 billion during the period. However, Dow Chemical has become the world’s leading specialty chemicals and advanced materials company after acquiring Rohm and Haas for a total investment of $16.3 billion.
 
Dow Chemical also noted that it expects to close its sale of the salt producing company, Morton Salt under Rohm and Haas to the Germany-based K+S AG for $1.68 billion in second half of 2009. K+G AG is an agricultural chemical and salt company and the largest supplier of Potash in Europe. The company is also divesting its stake in Optimal Group of Companies to Malaysia's state-controlled oil company for $660 million by the end of the year.

This apart, media reported that Dow Chemical and Saudi Aramco are expecting cost synergies of about $4 billion on their joint petrochemical complex as the slowing economy reduces project cost. The estimated cost of the plant was at least $20 billion before reduction. Saudi Aramco is the state-owned national oil company and the biggest oil corporation in the world with the largest proven crude oil reserves and production.

We maintain our Neutral recommendation on the stock.

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