Chemical giant The Dow Chemical Co. (DOW) raised the aggregate amount for its tender offer for a pool of notes to $1.5 million from $750 million, after receiving tenders of $1.7 billion. An offer for a second pool of notes received $832 million with a cap of $300 million.
Dow also under went an agreement with Solazyme Inc., a South San Francisco-based renewable oils and bio-products company, for bio-based dielectric insulating fluids.
Solazyme will help to develop a new class of algal oils. Dow expects to obtain up to 20 million gallons of Solazyme’s oils for use in dielectric insulating fluids and other industrial applications in 2013 and up to 60 million gallons in 2015. The financial terms of the deal were not disclosed.
In the fast growing space of bio-based dielectric insulation fluids, it is believed that Solazyme’s tailor-designed algal oils will serve as a foundation to develop a new generation of fluids that are fire safe, environmentally sound, and that provide overall increased performance to users of transformers and other electrical applications.
In February, Dow reported sales of $13.8 billion for the fourth quarter of 2010, which was up 22% year over year. The company’s net earnings were 37 cents per share in the fourth quarter of 2010, ahead of the Zacks Consensus Estimate of 35 cents as well as last year’s 8 cents.
However, including one-time charges, the company earned 47 cents compared with 18 cents in the year-ago quarter.
Dow continues to deliver cost synergies from the Rohm & Haas (ROH) acquisition, which is expected to consolidate the higher margin and higher growth specialty businesses while reducing volatility in earnings and cash flow.
We believe that management’s strategy of selling equity interests in commodity assets is appropriate, though these units continue to produce good results as the global economy strengthens.
Dow’s net debt is $20.6 billion following completion of the Rohm and Haas transaction and subsequent divestitures, equity offerings and debt retirement. The company is focusing on its core business and has been divesting on non-strategic assets.
However, we are wary of the macro trends. Moreover, we believe a slower recovery in the developed markets of the US and Europe, excess supply conditions in key commodities and higher raw material costs could restrain growth.
Dow faces stiff competition from BASF SE, EI DuPont de Nemours & Co. (DD) and Exxon Mobil Chemical Company (XOM).
We maintain our long-term Neutral recommendation on Dow Chemical. Currently, it holds a short-term Zacks #1 Rank (Strong Buy) on the stock.
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