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Mideast funds in $50b US buyout move

DUBAI — A consortium of Middle Eastern investors and American buyout firms is gearing up for a bid of at least $50 billion for Dow Chemical Co. in what could be the world's biggest ever leveraged buyout, a British paper said yesterday.

Britain's Sunday Express, quoting sources close to the deal, said that a financing package has been put in place for a break-up bid of between $52 and $58 a share and an approach valuing the company at least $50 billion could come by the end of this week.

At least half of the capital is being provided by investors from Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE and Oman, with the rest contributed by a number of US buyout firms including Kohlberg Kravis Robert, it said. The buyout team is also likely to be composed of Blackstone Group and Carlyle Group. They intend to break up Dow Chemical into smaller companies.

Reports that Dow Chemical Co. may become the target of the biggest leveraged buyout in corporate history have been rife with buyout firms hunting for bigger prey as they raise billions of dollars from investors and their borrowing costs drop to historic lows.

Blackstone Group LP's record $39 billion purchase of Equity Office Properties Trust is being eclipsed by a $45 billion bid for TXU Corp. from Kohlberg Kravis Roberts & Co and Texas Pacific Group.

Recently, Sunday Express reported that Dow Chemical might cost $54 billion, based on the possible $60-a-share number. Even at that price, shares of the largest United States chemical producer would be a bargain by comparison with peers in the Standard & Poor's 500 Index.

Analysts see the Midland, Michigan-based company earning $4.19 a share this year, based on the average estimate in a news survey. The per-share value of the bid would be equivalent to 14.3 times estimated earnings.

Analysts said Dow Chemical is also relatively cheap when measured by revenue or book value, or assets minus liabilities. The shares trade at 0.88 times last year's sales and 2.53 times book. Both numbers are the third lowest among index members.

Sources close to Dow Chemical Co. said the management would oppose any attempt by buyout firms to break up the chemical giant. A Merrill Lynch analyst said the threat of a takeover, however, could jumpstart the company to send more money back to shareholders.

"In the current market, takeover speculation is likely to keep the shares from declining in price despite the fact that Dow has a much more cyclical earnings stream than recent private equity targets such as utilities and office REITs," said Merrill analyst Don Carson in a research report.

What's more, management could respond to a takeover threat by increasing the dividend, buying back more shares or selling assets like Dow AgroSciences, Carson said.