Dow Chemical 2011 Annual Report Download - page 167

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Matters Involving the Formation of K-Dow Petrochemicals
Introduction
On December 13, 2007, the Company and Petrochemical Industries Company (K.S.C.) (“PIC”) of Kuwait, a wholly owned
subsidiary of Kuwait Petroleum Corporation (“KPC”), announced plans to form a 50:50 global petrochemicals joint venture.
The proposed joint venture, K-Dow Petrochemicals (“K-Dow”), was expected to have revenues of more than $11 billion and
employ more than 5,000 people worldwide.
On November 28, 2008, the Company entered into a Joint Venture Formation Agreement (the “JVFA”) with PIC that
provided for the establishment of K-Dow. To form the joint venture, the Company would transfer by way of contribution and
sale to K-Dow, assets used in the research, development, manufacture, distribution, marketing and sale of polyethylene,
polypropylene, polycarbonate, polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related licensing and
catalyst technologies; and K-Dow would assume certain related liabilities. PIC would receive a 50-percent equity interest in K-
Dow in exchange for the payment by PIC of the initial purchase price, estimated to be $7.5 billion. The purchase price was
subject to certain post-closing adjustments.
Failure to Close
On December 31, 2008, the Company received a written notice from PIC with respect to the JVFA advising the Company of
PIC’s position that certain conditions to closing were not satisfied and, therefore, PIC was not obligated to close the transaction.
On January 2, 2009, PIC refused to close the K-Dow transaction in accordance with the JVFA. The Company disagrees with
the characterizations and conclusions expressed by PIC in the written notice and the Company has informed PIC that it
breached the JVFA. On January 6, 2009, the Company announced that it would seek to fully enforce its rights under the terms
of the JVFA and various related agreements.
Arbitration
The Company’s claims against PIC are subject to an agreement between the parties to arbitrate under the Rules of Arbitration
of the International Chamber of Commerce. On February 18, 2009, the Company initiated arbitration proceedings against PIC
alleging that PIC breached the JVFA by failing to close the transaction on January 2, 2009, and as a result, Dow suffered
substantial damages. The Company is seeking damages in excess of $2.5 billion in the arbitration proceeding. The parties have
now completed their briefing, submissions of evidence and oral arguments to the three-member arbitration tribunal. The record
on the merits is now closed, and the Company anticipates a decision in early 2012.