Inquiry at Dow Chemical on foot of buyout rumours

The turmoil surrounding Dow Chemical intensified yesterday after it emerged that US regulators had opened an informal inquiry into the trading of its shares and that the US chemical group had held merger talks with its rival DuPont.

The inquiry by the Securities and Exchange Commission (SEC) is believed to be examining movements in Dow shares over the past few months when the company was engulfed in rumours of a buyout by a consortium of Middle Eastern investors.

Efforts to take over Dow, the largest chemical group in the US, led to the firing of Pedro Reinhard, a Dow board member, and Romeo Kreinberg, an executive vice-president, last month.

Acting on a tip-off from Jamie Dimon, chief executive of JP Morgan, Dow accused the senior employees of conspiring with the consortium, believed to have been led by Omani investors. The company later sued the two for breach of contract.

The pair have denied any wrongdoing and have counter-sued Dow.

They were unavailable for comment yesterday.

Separately, it emerged yesterday that months before the rumours of a buyout surfaced, Dow had made an informal approach to DuPont about a merger that would have created a chemical giant worth more than $70 billion.

The two companies declined to comment, but people familiar with the situation said that DuPont had rejected the idea and no talks were held.

The SEC, which has stepped up its efforts to crack down on insider dealing, also declined to comment.

The regulators are likely to look for unusual spikes in Dow's shares and trading volume in the aftermath of several articles in the UK press about a potential buyout of the group.

On February 26th, a day after an article in the Sunday Express said that Dow would be the target of the world's biggest buyout at a premium of some 30 per cent to its market value, Dow's New York-listed shares rose more than 3.5 per cent. Volume was unusually high, exceeding the daily average by almost three times.

Dow's shares also surged in the aftermath of an Evening Standard article on March 13th.

At the end of the following trading day in New York, Dow Chemical shares closed more than 2 per cent higher in heavy volume, in spite of a fall in the rest of the market.

On April 9th, after another article in the Sunday Express had claimed a buyout was imminent, the shares rose again, prompting Dow to issue a formal denial of the buyout talks.

Later that day, Mr Dimon met Andrew Liveris, Dow's chief executive, and told him that JP Morgan's London office had been working with the Middle Eastern investors on a possible takeover of the company, according to legal documents.

Regulatory experts said suspicious trading patterns are picked by the New Stock Exchange computers and usually referred to the SEC. - (Financial Times service)