Dow to Convert Preferred Shares

Dow Chemical has announced it will convert $4 billion worth of preferred shares held by Warren Buffett's Berkshire Hathaway investment vehicle and Kuwait's sovereign wealth fund into common equity.

Buffett, the billionaire US investor, purchased 3 million of Dow’s preferred shares for $3 billion in April 2009 to help the chemical giant finance its acquisition of chemical producer Rohm & Haas. Kuwait Investment Authority (KIA) bought 1 million of the company’s preferred shares for $1 billion.

Converting the shares with an annual dividend rate of 8.5% was made contingent on the Dow stock trading above $53.72 per share for any 20 trading days in a 30-day window. The share price recorded gains of nearly 10% in the past month.  After the conversion, Buffett will hold about 6% of the chemical company KIA around 2 percent.

According to the news agency Reuters, Dow has paid Buffett $255 million in dividends every year since the purchase, netting the investor gains about $1.8 billion since 2009. Kuwait Investment Authority netted nearly $600 million in the same period.

Following the conversion of the preferred shares, Dow will issue 96.8 million new common shares, representing nearly 9% of its 1.12 billion shares outstanding on Sept. 30.