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Dow Chemical Lands a Big One

By David Smith – Updated Apr 5, 2017 at 4:50PM

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Following a couple of months of speculation, Dow Chemical has disclosed big plans.

Well, Fools, if you've been standing around, sipping coffee, and waiting for Dow Chemical (NYSE:DOW) to do something major with its sagging commodity chemicals businesses, you now have that something. Indeed, with speculation increasing about the company's course, management's checked in with what can only be described as a major deal.

As it turns out, a unit of Kuwait Petroleum -- not surprisingly that country's state oil company -- will spend about $9.5 billion for a half-interest in a package of Dow's operations. The properties are located across much of the world, including the U.S., South America, and Europe.

Among other things, the facilities produce a combination of polyethylenes, polypropylenes, and polycarbonates. All you need to know about those products with the difficult-to-pronounce names is that, collectively, they constitute the building blocks for an array of products, including plastics, packaging, pipes, fibers, automotive parts, and pharmaceuticals. The real key for investors is that their manufacture by Dow has been subject to increasing competition. And since they're largely hydrocarbon-based, their feedstock prices have been rising steadily.

From Dow's perspective, the deal will permit it to get out from under a group of assets with declining margins. And, for its part, Kuwait Petroleum will join a list of state oil companies that are spreading their wings beyond simply producing oil and natural gas in or near their home countries.

And for us all, this announcement both confirms the breakneck pace of globalization in the production and use of hydrocarbons, and perhaps provides something of a renewed perspective on Dow. Unshackled from the weight of some of its less-stellar assets, the company may now be able to improve its return on assets and return on equity to levels closer to its chemicals twin, DuPont (NYSE:DD), which it currently lags. That possibility appears to warrant Foolish attention.

For related Foolishness:

Dow Chemical is a Motley Fool Income Investor recommendation. Try the market-beating, dividend-focused newsletter service free for 30 days.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does welcome your help with chemistry exams, or your communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
DOW
E. I. du Pont de Nemours and Company Stock Quote
E. I. du Pont de Nemours and Company
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