Everything Warren Buffett: HOTSTOCKED.COM: After 97 years, The Dow Chemical Company (NYSE:DOW) has cut Dividend

Friday, February 20, 2009

HOTSTOCKED.COM: After 97 years, The Dow Chemical Company (NYSE:DOW) has cut Dividend

Contributed by: Lindsay

Date: 19 Feb, 2009

97 years is a long time - plenty can happen. Times change and stocks plummet and rise. So what has taken The Dow Chemical Company (NYSE: DOW ) this long to cut its dividend? Dow Chemical recently surrendered to financial and economic crises. In essence, the company cut its dividend for the first time in their 97 years of operation. This cut was done in an effort to save approximately $1 bn which could be used for its $15.4bn takeover of Rohm and Haas. Dow cut its quarterly payout by approximately 64 percent to 15 cents a share.

Interestingly, the company's decision to cut down was made two months after Andrew Liveris, the chief executive had pledged not to halt Dow's run of 389 quarters without a dividend cut. Liveris was adamant that Dow will forge ahead, "We will not break that streak. Not Dow. Not on my watch."

However, since then, the company has seemingly been plagued by tough markets. Not to mention the surprise decision by Kuwait's state-owned oil company to retract a joint venture, for Dow's low growth plastics business.

What does this mean for Dow? Well, according to statistics, the company was deprived of approximately $7.5bn and this also caused them to miss a deadline for the completion of the deal with Rohm and Haas (a speciality chemical producer). The deal would have increased Dow's reliance on high-margin products. In effect, Rohm and Hass has sued Dow. Everything's not coming up roses for Dow. Yet, Mr. Liveris remains steadfast. Liveris confirms that Dow did not need the proceeds of the plastics joint venture as the company had already secured $4bn from Warren Buffett and Kuwait Investment Authority. As a matter of fact, this includes a $13 bn bridge loan from several banks.

After the announcement, Dow's shares fell. Fortunately it recovered in a later session and closed unchanged at $10.04. According to Liveris, he and other executives are looking for new financing for the Rohm and Hass deal. The company is currently holding talks with its banks in the hopes of extending the maturity and reduce the interest rate of the bridge loan. The company is also negotiating with other partners for its plastics business.