bloggingbuyouts

Eastman Kodak (NYSE: EK) is recently up $1.30 to $28.34 after the Financial Times reported Hewlett Packard (NYSE: HPQ) may take another look at EK as an acquisition target. EK has been frequently mentioned as a takeover target over the last four years. EK is expected to report EPS on 11/1. EK call option volume of 22,749 contracts compares to put volume of 11,136 contracts. EK October 30 straddle is at $2.15. EK November call option implied volatility is at 43, puts are at 49, above its 26-week average of 35 according to Track Data, suggesting larger risk.

Dow Chemical (NYSE: DOW), a diversified chemical company, is recently up $0.67 to $45.46 on unconfirmed reports DOW canceled an analyst meeting, renewing buyout chatter. DOW is expected to report EPS on 10/25. DOW call option volume of 16,275 contracts compares to put volume of 3,026 contracts. DOW November option implied volatility of 28 is above its 26-week average of 25 according to Track Data, suggesting larger price risk.

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

This is kind of funny. After firing two senior executives for engaging in secret negotiations with private equity firms, Dow Chemical (NYSE: DOW) may now be in play. Apparently all the media coverage of the scandal may have gotten some private equity firms to take a look at Dow and realize that it might be a good buyout candidate. Dow has downplayed the rumors saying that the company is not for sale. While its fair valuation and cash pile may make it an attractive acquisition candidate, its size (44 billion dollar market cap) and cyclical earnings may make it less interesting.

But here's my question: If the company does end up being taken private, will the fired executives be paid a finder's fee for being the spark that started the fire?

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.

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.

Georges Yared is the chief investment officer of Yared Investment Research