Dow Chemical Creates a Shopping Cart

After announcing the feasibility study of the coal chemical joint venture between Dow Chemical (DOW) and Shenhua Group Corporation Limited in China is likely to be submitted to the National Development and Reform in early 2009, Dow announced a "reorganization of units for review".

The new group, Dow Portfolio Optimization, will contain various businesses with the intent on finding how to best maximize their "long-term value to the company - whether that be through realignment to other Dow businesses, joint ventures or divestitures" said DOW.

George Biltz, currently the head of Dow's specialty plastics and elastomers portfolio, will head the group. The products in it will be the SARAN speciality-films brand, polycarbonate, compounds and blends, synthetic rubber and specialty copolymers. Other businesses are expected to be added "as they are assessed for strategic alignment with Dow's transformational strategy.

In short, "we are welcoming bidders". My guess is DOW would love to sell these into a JV like they did with their commodity business lately.

It is estimated DOW will end up investing $5 billion in the Chinese JV and while that may seem like a lot, it is just over 1/2 the $9.5 billion they are getting from the commodity sale. Dow has promised that in 2008-09, if they cannot find a place for the money, they will repurchase shares. $9.5 billion represents 1/4 of the company's current market cap.

DOW will want to do both. Liveris has made it a mission of his to solidify the company's balance sheet and he has succeeded in making it better than it has been in decades. That being said, do not expect him to pull a Home Depot (HD) and load it back up with debt to repurchase shares. What he will do instead is shed low margin cash sucking product lines to repurchase the shares.

Personally, I would love to see a much higher dividend so my DRIP plan pushes more shares my way before earnings explode after 2010. We'll see.. Liveris has not let me down yet...

Disclosure: Long DOW.