Dow Shares Up on News of Kuwait Deal

News that Dow Chemical Co. (DOW) plans to sell a portion of its raw plastics business to Kuwait’s state-run oil company for $9.5-billion to create a 50/50 joint venture confirms one of many rumors involving the chemical giant recently.

This outcome, however, includes a new cast of characters. It is also one of the more kind options for Dow bondholders, according to Gimme Credit analyst Carol Levenson.

Shareholders definitely like the move, sending Dow up more than 6% on Thursday.

Ms. Levenson compares the deal to General Electric Co.’s (GE) sale of its plastics business to the Saudi Basic Industries Corp. earlier this year, saying the Dow deal looks more like an asset sale than a joint venture. Nonetheless, she thinks the price is fair.

But one of her concerns is that the joint venture’s capital structure has not been established. And then there is the question of what Dow will do with all that cash.

She is “gratified” that Dow plans to use the cash to make a “transformational” acquisition, preferring this route even if additional borrowing is need to fund it as opposed to a share buyback.