Every time Dow Chemical (DOW) sheds an asset, its stock price jumps, and today is no different. The company has sold its powder-coating business to Dutch-based Akzo Nobel NV for an undisclosed sum.
In March, a few months after Dow made its bid to buy specialty chemical maker Rohm & Hass for about $15.2 billion, Dow shares fell to a 52-week low of $5.89. The acquisition threatened to burden the company with an additional $11 billion in debt, on top of the $8 billion or so it already owed. Dow even tried to back out of the deal, but was forced by the courts to proceed.
As soon as the deal closed, Dow began shedding assets. First to go was Morton Salt, for $1.675 billion. Another $1.5 billion worth of assets were gone by the end of July.
Dow has also issued $6 billion in new debt, $2.25 billion in new equity, and about $3 billion in perpetual preferred securities to pay for the Rohm & Hass acquisition. The company has also raised prices for many of its products, while seeing its costs for feedstock and petroleum drop significantly.
In the third quarter of 2009, Dow’s coatings sales were off 22% from the same period a year ago, and volume had dropped 9%, even though prices had also declined by 13%. That’s after a second quarter in which sales were off 30% from a year ago. Akzo Nobel probably got a good buy here, but Dow certainly exited a business that was going nowhere for the company.
Dow traded up, although it cost the company a pretty penny. The company has acquired a solid technology company with strong book of products and innovation. To do that, Dow got rid of a salt company, its stake in an oil refinery, and its stake in the Malaysian chemical business.
Analysts and shareholders should welcome that kind of trade every day of the week. And that’s what seems to be happening with Dow, where the company’s shares have set a new 52-week high today.
Related Articles:
- What’s Next for Blockbuster?
- Winners of a Weak Dollar
- Do You Really Want to Invest Like Warren Buffett?
Not all cheap stocks are created equal! Get the names of 26 cheap stocks to avoid right now, plus the five red flags for buying cheap stocks.– download your FREE copy here. !
