When I first heard about the rumored $50 billion Dow Chemical Co. (NYSE: DOW) buyout, I thought it was speculative nonsense stirred up by a U.K. tabloid. It turns out my skepticism was justified.

Late yesterday, Dow flatly denied that it was having discussions about a leveraged buyout. Wall Street analysts thought a buyout was unlikely. The U.K.'s Sunday Express, which reported the story, first disclosed these rumors in February.

Whenever investors see reports about mergers, acquisitions or buyouts, they need to consider the source. News organizations such as The Wall Street Journal, New York Times, Bloomberg News or the Financial Times are very careful about printing stories about potential mergers and acquisitions. I don't remember a situation where a story where a story from these sources was flatly denied.

Remember that investment bankers use the business press all of the time to promote deals that they are working or would like to work on. This is like the child's game Whisper Down the Lane. Someone talks to someone else about a possible deal which becomes a potential deal than a likely deal. Eventually. people aren't sure how the rumor started in the first place.

But before you discount this story entirely, remember that the Sunday Express didn't come up with this idea by itself. Maybe this was a trial balloon floated by a banker or public relations person. I have no idea whether Dow management has ever spent one second even considering a buyout.

But as the hapless American Idol contestant Sanjaya Malakar shows week after week, anything is possible.

Dow buyout isn't happening originally appeared on BloggingStocks on Tue, 10 Apr 2007 08:05:00 EST. Please see our terms for use of feeds.