Dow Chemical Co. (NYSE: DOW) stands to receive $2.16 billion from Kuwait as penalty fees for having canceled on an agreement to buy a part of the Dow-owned plastics business in 2008.
As a result, Warren Buffett and Berkshire Hathaway (NYSE: BRK.A), which own around $3 billion in preferred shares and another $1 billion that was sold to Kuwait, will stand to gain substantially.
Initially, Dow had sold the securities in order to finance a 2009 deal over Rohm & Hass Co. The preferred shares pay 8.5% annually.
The Kuwait affair has stirred some controversy, but it generally seems to have been accepted by all parties. Kuwait has requested that the amount of the penalty be revised but hasn’t exactly protested innocence. While the fine print will be worked out through this year, payment is expected some time in 2013, complete with interest and other fees.
Dow intends to make use of the money to improve its bottom line and general balance sheets in addition to awarding shareholders. It will not be looking to make any new acquisitions based on this windfall.
During the Rohm & Hass purchase, Dow made use of Buffett’s help to the tune of some $16 million. Now, Berkshire Hathaway can, if it wants, exchange its preferred share holdings for 72.6 million shares of Dow’s common stock ($41.32 per share).
“We do well if the common at Dow does well,” Buffett told Bloomberg Television’s Betty Liu in an interview this month. “We also do well on the coupon on Dow, but we made a commitment” at a time when there were few sources of alternative financing, he said.