Moody's affirms Dow Chemicals

Moody's Investors Service said it affirmed the A3 ratings of the Dow Chemical Co. and its Prime-2 rating for commercial paper following Dow's announcement that it plans to enter into another commodity petrochemical joint venture with Petrochemicals Industries Co. In exchange for contributing assets related to some of Dow's commodity businesses (polyethylene, polypropylene, polycarbonate, ethyleneamines and ethanolamines), it will receive $9.5 billion in cash and a 50% equity stake in the venture.

The outlook remains negative.

The agency believes that such a transaction would be a substantial credit positive taken in isolation. However, Dow has indicated it will pursue transformational merger and acquisition transactions to utilize the cash it expects to receive by the end of 2008. Given Dow's size, a transformational acquisition, or series of acquisitions, could cost $10 billion to $15 billion or more depending on the size of the acquired assets and the purchase price multiple, Moody's said, adding that the magnitude of such potential transactions and the time required to complete the joint venture and receive cash does not support a stable outlook at the current time.

Dow's A3 ratings reflect the company's large size, significant geographic and product diversity, increased investment in low-cost petrochemical capacity in the Middle East and Asia and solid EBITDA margins, Moody's said.

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