Dow to Seek Legal Action Over Kuwait Deal

Updated from 7:31 a.m. EST

By Ernest Scheyder

NEW YORK -- Dow Chemical (DOW Quote) said Tuesday it will pursue legal action against a state-owned Kuwaiti company that pulled out of a joint venture agreement last week, and is already in talks to revive the deal with other investors.

The Midland, Mich.-based company could potentially recoup $2.5 billion from Petrochemical Industries after it backed away from the K-Dow Petrochemicals venture, according to filings with the Securities and Exchange Commission.

Dow said it will continue to pay its regular quarterly cash dividend, which it has done without fail since 1912, and accelerate cost cuts in 2009.

Dow said last month it would lay off 11% of its work force, close 20 plants and divest a number of businesses.

Kuwait pulled out of the deal following weeks of internal political pressure. Dow had expected to get more than $7 billion in cash from the transaction, some of which would have helped pay off its $15.3 billion buyout of Philadelphia-based Rohm & Haas(ROH Quote). Dow must close the Rohm & Hass deal by Saturday, or the $78-per-share price will begin to increase immediately under the terms of the agreement.

Dow said it plans to move quickly to create another joint venture for its plastics division after the collapse of the Kuwaiti deal.

"Some of these discussions were active as recently as November, and we have already been contacted by other interested parties and have begun discussions," said Dow CEO Andrew Liveris. "This can be done on an accelerated timeline due to the considerable groundwork that has already been established in anticipation of the K-Dow joint venture."

While the company seeks another partner, it will go after Kuwait's Petrochemical Industries.

"Pursuing legal options is not a decision we take lightly ... but (Petrochemical Industries) is in breach of contract, and we must take action to protect the interests of our company and our shareholders," he said in a statement.

Shares of Dow rose 3%, or 45 cents to $15.50 in premarket trading. The stock has traded between $43.43 and $15.01 in the past 52 weeks.