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Dow Chemicals & Petrochemical Indus. Co. Joint Venture

Dow Chemical (DOW) plans to sell a 50 percent interest in five of its global businesses to a Kuwaiti company for about $9.5 billion and form a new joint petrochemicals venture. Dow Chemical Co. and Petrochemical Industries Co.(PIC), an arm of Kuwait Petroleum Corp., announced plans to form a 50/50 joint venture to create a fully integrated petrochemicals company.

To form the new company, Dow Chemical will sell to PIC a 50% interest in the business assets included in the transaction. In turn, both PIC and Dow Chemical will place their share of the assets into the joint venture, with each party then taking a 50% equity interest in the new company. The value of the five Dow Chemical global businesses that will form the joint venture is $19 billion. Dow Chemical will receive about $9.5 billion before taxes from PIC for the 50% interest.

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The venture will have its headquarters in the U.S. and will manufacture and market polyethylene, ethylenamines, ethanolamines, polypropylene and polycarbonate. These chemicals help produce a wide range of materials from plastics to polishes to pharmaceuticals.

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The new venture is expected to close in late 2008, have pro-forma revenue of more than $11 billion and employ more than 5,000 people worldwide.

“The joint venture between PIC and Dow will be positioned to flourish in high-growth economies through access to feedstock offtakes from future KPC refineries in emerging regions,” said PIC Managing Director Maha Mulla Hussain. “This will give the new joint venture company the distinct advantage of full integration from feedstocks to derivatives, while meeting growing customer demand in emerging markets.”

“This joint venture, after it closes, day one and beyond, will be the player in the petrochemical field,” Andrew Liveris, Dow’s chairman and chief executive, said during a teleconference with industry analysts. “Make no bones about it. And we’ll have the resources to grow where the growth is occurring, and the Dow Chemical Co. shareholders will benefit from that.”

The sale gives Dow Chemicals ammunition of $9.5 billion for further growth and acquisition in the coming year supporting their objective of continued transformation. This will put cash in play that can be used for a wide range of activities. Dow may choose to slash long-term debt, which this tidy sum would eliminate almost entirely. It also may choose to expand other ventures that have a promise of higher returns or diversify into businesses that are less dependent on oil as feedstock and thereby increase potential growth while reducing volatility. Dow Chemicals have stated that they would continue to evaluate medium-sized targets and are not averse to large transactions. This in turn would reward the shareholders of Dow Chemicals.

The Dow Chemical Company had already declared a dividend of 42 cents per share payable on January 30, 2008, to shareholders of record on December 31, 2007. This is the 385th consecutive cash dividend issued by Dow. Since 1912, Dow has paid its shareholders cash dividends every quarter and has either maintained or increased the quarterly dividend amount throughout that time. Dow has always maintained or raised the Quarterly dividend for last 95 years. The dividend has increased by 12% in April 2007 and by 25% since January 2006 Covered Calls.

Dow is a good covered call example of a potential investment in a stock option trading position. The following covered call investing positions were found for Dow Chemicals using PowerOptions search tool.

PowerOptions covered call search
Option Strike
DOW 41.01 (+0.01) DOWCH 08 MAR 40.0 (93) 2.9 7.1 5 5
DOW 41.01 (+0.01) DOWCI 08 MAR 45.0 (93) 0.85 2.1 2.1 12.1
(For more details click the ticker symbol above)

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[tags] DOW, Dow Chemical Co., PIC, PowerShares Dynamic Insurance ETF, covered call example, covered call investing, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]

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