Chemical giant, The Dow Chemical Company (DOW) announced that it has tendered $1.5 billion in notes in a modified “Dutch Auction.” The notes were issued by Dow and its subsidiaries, Union Carbide Corp. and Rohm and Haas Co. in a process that uses bids to set a price for the securities.
Dow announced the offer is the last in a series of moves to cut debt during the first quarter, including paying off $950 million in debt. This enabled Dow to reduce its gross debt by $2.5 billion, and slash the company’s interest expense by nearly $200 million on an annual basis.
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 non-strategic assets.
Dow also passed key independent quality audits and earned third-party certification from the International Pharmaceutical Excipients Auditing Inc. (IPEA) for its newly branded propylene glycol (PG) USP/EP product – DOW PuraGuard™ Propylene Glycol USP/EP. The certification was adhered to for Good Manufacturing Practices (GMP) based on the Joint International Pharmaceutical Excipients Council (IPEC) and Pharmaceutical Quality Group (PQG) GMP Guide for Pharmaceutical Excipients.
The IPEA certification demonstrates Dow’s quality excellence with DOW PuraGuard PG USP/EP throughout the manufacturing process, in keeping with the industry’s rigorous quality-control practices.
With the largest global production capacity for propylene glycol, Dow is the only company to have propylene glycol plants in two U.S. states in addition to manufacturing sites in Brazil, Germany and Australia.
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.
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.
However, we are wary of the macro trends. We believe a slower recovery in the developed markets of the US and Europe, and 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 Corporation (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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