On Tuesday, the Financial Times published my letter regarding the recently-announced joint venture between Dow Chemical and the Kuwait Petroleum Company (KPC). The letter is entitled “Gulf Investors Exert New Control” and the text is as follows:
Sir, Francesco Guerrera’s report “Dow to invest plastics business into $11bn Kuwaiti joint venture” (December 14), on the deal between Dow Chemical and the Kuwait Petroleum Company (KPC), rightly identifies a trend of Gulf-based entities increasingly investing in global companies. As important as the increased volume of such investment, however, is the increasingly strategic nature of Gulf companies’ acquisitions.
The Dow-KPC deal differs from other recent transactions (such as Abu Dhabi Investment Authority’s $7.5bn injection into Citigroup) in two key ways. First, the sector itself (plastics and petroleum-related chemicals) is one in which the Gulf has an inherent advantage and is therefore credibly positioned to become a global leader. Second, the deal is a joint venture by which the Gulf investor exercises significant control and steers the enterprise: rather than take a passive role in a running concern, KPC is shaping the destiny of a new company. These two factors make the deal far more substantive than other high-profile stakes, enabling Dow and KPC to build a stronger business than either could do on its own.
Citi’s deal with ADIA has done little for its share price and strategic footing. Dow’s deal with KPC, on the other hand, sent its stock up 7 per cent in one day. As strategic capital creates more value than passive investments do, Gulf investors’ increasingly strategic view bodes well for shareholder value.
Aamir A. Rehman,
New York, NY 10021, US
Copyright The Financial Times Limited 2007