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Dow Chemical (DOW)
Dow Chemical to Sell Newly Acquired Morton Salt
Less than twenty four hours after Dow Chemical (DOW: Charts, News, Offers) announced its successful $15 billion acquisition of Rohm & Haas. The chemical firm has already divested one of its newly acquired subsidiaries, Morton Salt. Dow sold Morton Salt today to the German based K+S Aktiengesellschaft for $1.675 billion. Although many market analysts believe that the deal was fair for both parties involved. Why would Dow Chemical sell a business that earns a yearly revenue of $1.2 billion so quickly?
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Well for starters, Dow did not have much of a choice. As part of the agreement to acquire Rohm and Haas, Dow Chemical agreed to sell off the Morton Salt subsidiary. It is true that Dow was steered to these terms unexpectedly. However, the chemical giant would not have agreed to such a contingency without its reasons. As with most business decisions, the primary factor behind Dow's choice was money.
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Dow Chemical had originally planned to purchase Rohm & Haas in a joint venture agreement with a Kuwaiti chemical company. However, when its joint venture partner cancelled its plans to move forward with the acquisition, Dow had to take on a substantial amount of debt in order to broker the deal. In an attempt to manage the incurred debt, Dow Chemical has decided to sell off the non-core Rohm & Haas assets. With this strategy in mind, Dow had no objections to the mandatory divestment of Rohm and Haas' salt business in order to achieve the acquisition. In reality, Dow Chemical probably would have divested Morton Salt on its own accord anyway due to the high amounts of debt involved with deal.
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In an ideal situation, Dow would have probably preferred to keep Morton Salt, but considering the circumstances, Dow seems happy with the direction it is headed. Dow Chemical has managed to successfully acquire a major, complimentary chemical company that will provide considerable value to its firm. In addition, Rohm & Haas' core assets appear to align nicely with Dow's business strategy and operations. Dow Chemical has also formulated a strategy that will help eliminate its newly acquired debt by divesting the non-core Rohm & Haas assets.
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Overall, the Dow Chemical Company is optimistic about its future. It is rapidly expanding its reach within chemical industry while advancing its capabilities and resources. However, there are concerns that maybe this deal is too much financial stress for Dow to handle. Will the added value of Rohm & Haas outweigh the heavy amounts of debt? Does Rohm & Haas have enough non-core assets to divest so that Dow can effectively manage this debt? These are all questions that Dow Chemical hopes to answer in the near future.
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