Is Dow Chemical next?

As the "deal of the week" potentially unfolds here on Monday, it appears that the Dow Chemical Co. (NYSE: DOW) is set to receive an offer from a consortium of private equity buyers. The potential deal is estimated to be between $50-54 billion in size. This would make it the largest private equity transaction -- until probably next week when a larger one comes around.

Dow Chemical consensus revenue for this calender year is estimated at $50 billion and earnings per share at $3.97, which places Dow at a 12x price/earnings multiple. The stock trades at a discount to the P/E multiple of the S&P 500 of 15-16 times.

The group allegedly ready to make the offer is comprised of several Middle Eastern entities and U.S. private equity firm KKR. Dow is a truly global company with over 40% of its revenues coming from offshore sources. It is a major player in the plastic material industry, which serves the automotive and construction industries. What may lay ahead for Dow as the pure growth vehicle is its bio-agricultural development division. As ethanol and other bio-fuels are being developed, Dow Chemical has the necessary infrastructure and global distribution in place to accelerate growth in this division.

Nonetheless, if this transaction develops today or this week, it will "break" the record for private equity transaction size ... until the next one.

For more news & views about private equity, please see BloggingBuyouts.

Georges Yared is the chief investment officer of Yared Investment Research