A group made of up investors from the Middle East and the US is rumored to be making a bid to buy Dow Chemical (DOW). If the deal goes forward, it could be the largest LBO ever, about $50 billion. The offer would be in the range of $52 to $58. The stock currently trades around. $44.
The price may be a good deal for the investors, perhaps too good. Dow Chemical’s stock is down over 10% over the last two years. The S&P is up over 20% for the same period. The company’s operating profit did dip in 2006 to $4.13 billion from $5,24 billion in 2005. But, with the exception of a flat spot is 2002, revenue has gone up each year since 1998. With that kind of consistent growth, the company might be viewed as undervalued. Operating income last year was double the 2003 figure.
The down side of Dow is that it supplies both the construction and car industries. And, its pricing metrics are based on a number of commodities.
That makes a the company an unpredictable bet.
Douglas A. McIntyre