KUWAIT. Dow Chemical Co., the largest U.S. chemical maker by sales, said an arbitration panel ruled Kuwait must pay US$2.16 billion in damages because it canceled a 2008 agreement to buy a stake in the company's plastics business.
The award by the London-based International Court of Arbitration doesn't include costs or interest and is final and binding, Midland, Michigan-based Dow said today in a statement.
The timing of the payment and other terms of the agreement are confidential, Nancy Lamb, a Dow spokeswoman, said.
"Anything north of US$1 billion is a pleasant surprise," said Hassan Ahmed, a New York-based analyst at Alembic Global Advisors. "I don't think the market was giving Dow any credit for an imminent settlement."
Kuwait's Petrochemical Industries Co., under pressure from lawmakers, canceled a contract to form a 50-50 venture with Dow's plastics unit in December 2008.
The failure of the so- called K-Dow venture deprived Dow of a US$9 billion payment during the global financial crisis, almost derailed its 2009 purchase of Rohm & Haas Co. and forced the company's first dividend cut.
Dow rose 2.6% to US$31.30 at 10:57 a.m. in New York.
The award boosts Dow Chairman and Chief Executive Officer Andrew Liveris's credibility because he pursued compensation for the aborted deal, Ahmed, who recommends buying Dow shares, told Bloomberg in a telephone interview.
Dow may use the proceeds to refinance its higher interest debt or buy back preferred stock, Ahmed said. Dow sold US$3 billion of preferred shares yielding 8.5% a year to Warren Buffett's Berkshire Hathaway Inc. to help pay for Rohm & Haas. Lower interest costs would immediately boost earnings and Dow may also pay a special dividend, he said.
It's not yet clear how Dow will use the funds, Lamb said. The company is focused on using cash to reward shareholders, pay down debt and invest in growth projects, she said.
The company cut its quarterly dividend to 15 cents a share from 42 cents in February 2009 following the collapse of the K- Dow deal. Dow has since raised the payout to 32 cents a share.
Petrochemical Industries, a unit of state-owned Kuwait Petroleum Co., was to have paid US$7.5 billion for its stake in K- Dow, and the venture was to have paid each partnerUS US$1.5 billion.
Dow still has four joint ventures with Kuwait that predate K- Dow, including Equate Petrochemical Co. and MEGlobal BV, which make ethylene glycol, a chemical used in antifreeze and polyester.
"We remain focused on continuing to move forward with our transformation and profitable business partnerships -- both in Kuwait and around the world," Liveris said in the statement.