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By John Gallagher & Jewel Gopwani, Detroit Free Press Business Writers

Created: 2/27/2007 11:07:42 AM

Updated: 2/27/2007 11:08:55 AM

Published speculation that Midland-based Dow Chemical Co. might be a takeover target has people in its hometown and across Michigan worried.

"From young children to struggling families, they make a difference to the community," Sue Asher, who leads the United Way of Midland County, said Monday. "I would hate to see them bought out by someone who doesn't really care about the community."

Tim Letcher, who owns a Dunkin' Donuts franchise on South Saginaw Road between Dow's plant and headquarters, agreed.

"It is the heart of Midland," he said Monday of the company that has been there for well over a century.

Over the weekend, a British publication, London's Sunday Express, said private equity firms - including Kohlberg Kravis Roberts & Co., Blackstone Capital Partners LP and the Carlyle Group - are potentially interested in teaming up to buy Dow.

If the report, which cited no sources, is true, the deal would be the biggest-ever leveraged buyout, at $54 billion.

Dow is Michigan's third-largest publicly traded corporation, behind General Motors and Ford. Last year, it reported sales of $49.1 billion and profits of $3.7 billion. Dow spokesman Chris Huntley said Monday the company does not comment on rumors, but he pointed out that similar reports surfaced in late January and were mostly dismissed by stock analysts and the company's chairman and chief executive, Andrew Liveris.

Even so, the fear in Michigan was that a takeover of Dow would result in layoffs and closings like those announced last month by Pfizer Inc.

Pfizer said it would lay off 2,400 people in Michigan and shut its Ann Arbor campus and a facility in Kalamazoo because of excess capacity in the wake of mergers.

"We could have a Pfizer situation if they had an ownership change" at Dow, Lansing-based economist Patrick Anderson warned Monday.

Moreover, given the battered state of Michigan's economy, with GM and Ford struggling through massive reorganizations, and Chrysler rumored to be in play as a possible sale or merger target, a takeover of Dow likely would hit the state hard.

Dow has about 6,000 employees across the state and 43,000 workers worldwide. Add in Dow's joint-venture partner, Dow Corning, and the number rises to 8,700 employees in mid-Michigan.
Dow Chemical makes about 3,200 products, ranging from synthetic latex to weed killer, at more than 150 plants in 37 countries.

The Dow rumors have arisen during what is a boom time for buyouts. With interest rates low and excess cash sloshing around global markets, a cascade of record-setting deals shows no signs of stopping.

Indeed, the Dow rumors spread Monday even as a deal was announced for the Texas energy provider TXU Corp. that claims the title of biggest-ever buyout, worth $45 billion. The group targeting Dow probably would bid $60 a share, which was 38% above the company's Feb. 23 closing price, according to the report in England. Dow's stock closed Monday at $44.99 per share, up $1.54 for the day and the highest closing price in a little more than a year.

As an indication of how big a potential deal for Dow would be, a $54-billion buyout would be 34% bigger than all of Michigan's 344 merger-and-acquisition deals in 2006 combined. In a leveraged buyout, investors borrow huge sums to buy a company and take it private, meaning stock is no longer sold to the public. Then, after shaking up management, selling divisions, closing plants, or otherwise retooling the company, the investors hope to sell it, or take it public again, at a profit.

Like any large publicly traded corporation, Dow already is owned by an international roster of big investment houses, including Germany's Deutsche Bank AG and the New York State teachers' retirement system. But each owner holds just a sliver of Dow's shares in a relatively passive manner.

By contrast, in a leveraged buyout, the potential new owners would constitute just a handful of key investors bent on doing whatever it took to wring additional value out of Dow's assets, including selling or closing plants and divisions.

Midland and the company have grown together after both were founded in the late 1800s.

Today, like the Amway legacy in Grand Rapids, the Dow name is embedded to the city of about 41,700 people. H.H. Dow High School was named for the company's founder. At the city's other high school, Midland High, the sports teams are known as the Chemics.

Dow contributed more than $1 million to the local United Way last year.

This spring the Dow Diamond baseball park is slated to open just outside of downtown for the city's new minor league team, the Great Lakes Loons. Dow bought the stadium naming rights for $280,000 a year.

In January, Dow announced that for 2006, it earned $3.7 billion, or $3.82 per share, down from $4.5 billion, or $4.62 per share, in 2005. Sales were $49 billion in 2006, up 6% from 2005's $46.3 billion.