Dow Chemical seems poised to keep AgroSciences

August 3, 2009

Midland, Mich.-based Dow Chemical Co. is still considering divesting Indianapolis subsidiary Dow AgroSciences LLC. But chances that the chemical manufacturing giant will sell its local agricultural chemical and biotech unit appear to have decreased.

In a conference call with analysts July 30, Dow Chemical CEO Andrew Liveris said his company spent the first half of 2009 restructuring as a result of the recession. He said Dow went “very, very deep” into explorations for divesting Dow AgroSciences—which has 1,200 employees in Indianapolis—although not so far as to enter negotiations with any potential buyers.

Unless a sale could generate a full “strategic premium,” Liveris said he’d rather hang on to Dow AgroSciences and grow it.

“Based on our strategic review and our desire to move to higher-growth, technology-driven and innovation-based business platforms, I can tell you that our current thinking and my personal preference is this business should be part of Dow’s long-term future,” Liveris told analysts.


“With that said, we remain open to exploring all options that will strengthen Dow and position it for growth while at the same time maximizing value for our shareholders,” he continued.

When Dow first dangled the possibility of selling AgroSciences early this year, it was facing a financial squeeze. But the company’s financial condition has since improved, and analysts have been skeptical Liveris would release his grip on a business that fits so neatly with his strategy.

Dow AgroSciences long has produced commodities such as pesticides and herbicides, but in recent years increasingly has concentrated on biotechnology, using genetics to create plant vaccines and new strains of seeds.

A report by research firm Gerson Lehrman Group calls a sale “very unlikely,” even though the business might fetch as much as $12 billion.

“It is conceivable that Dow is utilizing the potential monetization of Dow AgroSciences as a bargaining tool as it negotiates divestment opportunities in its commodity lines,” the report said.

“Imagine, for example, the following remarks that Dow could make to a potential buyer:  ‘Your price for our such-and-such commodity unit is inadequate; we don’t need to sell this business, as we have other assets, such as Dow AgroSciences, which can bring in substantial cash.’”

On the conference call, Liveris said options for Dow AgroSciences include strategic alliances with other businesses or an initial public offering.

Dow AgroSciences generated $140 million in earnings before interest and taxes in the second quarter, a 61-percent drop from the same period last year.

Revenue dipped 12 percent in the second quarter, to $1.2 billion. Dow AgroSciences attributed the decrease to unusually wet weather in North America and Europe, and extreme drought in Argentina, which limited the use of its weed-killing chemicals. In addition, lower farm commodity prices drove farmers to reduce costs, the company said.

Dow Chemical lost $486 million in the period compared with profit of $762 million in the same period last year. Revenue fell 31 percent, to $11.3 billion.

Dow Chemical’s loss was driven by charges related to its $16.5 billion buyout of Philadelphia-based Rohm & Haas in April and dismal sales for chemicals.

The company announced July 29 that Dow AgroSciences’ CEO, Jerome Peribere, was stepping down and moving to Philadelphia to lead its advanced materials business, which includes Rohm & Haas.

Peribere’s successor is Antonio Galindez, vice president of Dow AgroSciences’ crops business.

On July 24, at IBJ’s Life Sciences Power Breakfast at the Westin Hotel in downtown Indianapolis, Peribere called Dow AgroSciences the parent company’s “best asset.”

Dow “doesn’t have to sell Dow AgroSciences,” he said. “So then it’s a question of, is eventually the price going to be so fabulous that you can’t refuse that proposal?”•



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