Investing in LBO: Don't Bank on DOW Rumor
By Ian L. Cooper
Dow Chemical (DOW) saw impressive heavy interest following a Sunday Express article that said a group of Middle Eastern investors and U.S. LBO firms are preparing a $50 billion offer for the company, which could come by the end of the week.
However, according to a Dow spokesman (as quoted by Reuters), “We harness tremendous power from integration, we are not going to move away from that strategy… so a friendly takeover is not going to happen.” It’s also been reported by Reuters that, “most analysts agree that a hostile takeover is unlikely as Dow is too large and too integrated to allow such a bid to be successful.”
Interestingly, this article follows a February 26, 2007 report in the same paper that a group of investors was putting together a $54 billion bid for Dow Chemical. On the LBO speculation, DOW shares surged about 9%, its biggest one-day move since October 2002, to $47.26.
But look what happened in the days following the rumor. The stock tanked from that $47.26 high to less than $42 just weeks later.
Take care,
Ian L. Cooper, Editor, Death Cross Trader
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