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Editors’ Picks: Dow may shed Dow Agro

Cash-strapped U.S. chemical and plastics giant Dow Chemical is reportedly considering a “For Sale” sign for its high-performing farm chemical and biotech company.

Indianapolis-based Dow AgroSciences, which operates worldwide including a Canadian wing based in Calgary, is one of 12 major assets for which Dow Chemical is evaluating potential buyers, according to a recent report in the Indianapolis Business Journal (IBJ).

Andrew Liveris, CEO for Michigan-based Dow Chemical, started the discussion earlier this month by telling analysts on a conference call that the company has teams working with investment banks to look at possible buyers, IBJ’s Peter Schnitzler wrote in a Feb. 14 article.

Dow Agro formed in 1989 from a merger of Dow’s ag chemical business with that of Eli Lilly into DowElanco. Dow bought 100 per cent control of the company in 1997 and renamed it Dow AgroSciences, which now posts annual sales of US$4.5 billion in ag chemicals, seeds, traits and ag biotech (all figures US$). Its acquisitions have included Mycogen Seeds, Cargill Hybrid Seeds and Rohm and Haas’ ag chem business.

“While 2008 was our best year ever, more importantly this success illustrates our trend of growth from internal efforts, bolt-on acquisitions, and technology success,” Dow Agro CEO Jerome Peribere said in a presentation to investors Feb. 10 in Indianapolis.

Dow AgroSciences made nine acquisitions in its seeds business since 2007 and has also rolled out its new pyroxsulam and aminopyralid herbicides, which it said are “rapidly being adopted” worldwide by cereal growers and in range and pasture, respectively.

Dow Agro said it’s also “rapidly deploying” its new Exzact technology, which uses zinc finger proteins to give researchers and genetic scientists the ability to do gene targeting, “a long-standing but elusive goal of the biotechnology industry.”

“Demand destruction”

Dow Chemical, on the other hand, saw its profit drop to just $579 million on $57.5 billion in sales in 2008, including a fourth-quarter net loss of $1.55 billion.

“With a global economic crisis unfolding during the quarter, we responded with speed and urgency to get ahead of the demand destruction that continued to accelerate as we approached the end of the year,” Liveris said in the company’s year-end statement.

Dow Chemical, IBJ explained, is “struggling with a pair of fizzling mega-deals that are now entangled in litigation” including a jeopardized joint venture, K-Dow, with Kuwait’s Petrochemical Industries Co. That venture was expected to provide $9 billion toward Dow’s planned $15.3 billion takeover of Philadelphia-based chemical firm Rohm and Haas.

“Dow Chemical has sued Kuwait to close the first deal, and Rohm and Haas has sued Dow to try to force it to complete the second,” IBJ noted.

IBJ cited a report by the online wing of global business magazine The Deal that suggested Dow could likely raise a total of $10 billion if it sold Dow AgroSciences along with its 50 per cent stake in silicone product maker Dow Corning.

The Deal also listed potential buyers for Dow AgroSciences such as DuPont, Syngenta and Bayer CropScience, IBJ said.

The Indianapolis paper also quoted JP Morgan analyst Jeffrey Zekauskas as saying Dow AgroSciences is the sixth-largest player in the merger-ripe $48 billion worldwide ag chem market.

But not everyone expects Dow to sell, at least not if it has any choice, IBJ noted. “These days, it’s basically a profit centre,” William Selesky, an analyst with Argus Research Group, told the paper.

“In light of what they forecast going forward, the difficult challenging economic environment, I’d think they’d want to hold on and grow those segments that are performing well.”

— The “Editors’ Picks” feature will highlight unusual-yet-true news from the world of farming, as gleaned from various sources by the editorial staff of the Farm Business Communications division.

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