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DOW Chemical Co and a unit of Kuwait Petroleum Corp said that they will form a petrochemicals joint venture to link the Middle East company’s vast energy supply with Dow’s industry-leading market reach.

Dow said it will receive about $9.5 billion from Petrochemical Industries Co for contributing five of its global businesses worth about $19 billion to the joint venture. Those units contributed about a quarter of Dow’s 2006 revenues.

The joint venture will manufacture and sell chemicals used in products ranging from plastic bottles, compact disks and computers to agricultural compounds.
The new company will have $11 billion in sales at its inception, the companies said.

The joint venture will give Dow access to Opec member Kuwait’s crude oil supplies, easing its costs for the commodity, which has flirted with $100 per barrel in recent weeks.

The venture, to be based in the United States, will make polyethylene, ethyleneamines, ethanolamines, polypropylene and polycarbonate, and employ more than than 5,000 people worldwide, the companies said.

Dow shares have largely traded between $39 and $47 per share so far this year as the market has waited for what chief executive Andrew Liveris said would be a “transformational” deal.

Dow had warned that it expected stronger cost pressures in the fourth quarter because of the rising prices of energy supplies it uses to manufacture chemicals.

The deal structure is similar to the 50-50 MEGlobal JV that Dow and Petrochemical Industries set up in 2004. At the time, Dow sold a 50% interest in its Canadian ethylene glycol assets to MEGlobal.
Dow has been under pressure from Wall Street and investors to reduce its exposure to cyclical and low-margin commodity chemicals.

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