Dow Chemical dow said Tuesday it hopes to sell about $1.63 billion in common stock to pay down debt from its recent acquisition of Rohm & Haas.
The largest U.S. chemicals maker, based in Midland, Michigan, will issue $1 billion in common stock and convert $625 million of preferred shares from various trusts into common stock.
If the offering is successful, the company will be able to use $1 billion to pay down part of a $9.2 billion loan it used as part of its $16.5 billion buyout of Rohm.
The offering will increase the company's outstanding shares about 11%, or 99.5 million shares, from the current 925.8 million as of Tuesday's closing price.
That sharply dilutes the stake of current shareholders, a move not unnoticed on Wall Street, where investors sent shares down 53 cents, or 3.3%, to $15.80 in aftermarket trading.
"Today's offering will not only strengthen our balance sheet and improve our financial flexibility, but it is also very consistent with the objectives" of our plan to cut debt, Chairman and Chief Executive Andrew Liveris said in a statement.
The total $1.63 billion isn't being used to pay down debt because Dow is essentially buying out preferred shareholders who supported the Rohm buyout when it went through earlier this year. At the time, Dow needed as many parties as possible to close the deal.
But the preferred shares pay an unusually high dividend, and Dow has been aggressively cutting costs ever since it acquired Rohm in an effort to shore up its balance sheet. Buying out the preferred shareholders was one way to accomplish that goal.