Dow’s Olympic Deal at Risk from Memory of Bhopal Tragedy

The 1984 Bhopal Gas Tragedy, the world’s worst ever industrial disaster, is coming back to haunt Dow Chemical Co. (NYSE:DOW) and threatening its worldwide sponsorship agreement with the Olympics through 2020. The Indian government is objecting to the London’s organizing committee’s sponsorship deal with Dow, which has been chosen to supply the decorative wrap around the Stratford Olympic stadium. Now the opposition to the deal is growing within the UK as well, which puts at risk its global image. Also the company can lose as much as $1 billion in long-term sales, which is the company’s estimates for the opportunity from this sponsorship deal. Dow competes with other global specialty and commodity chemical companies such as DuPont (NYSE:DD), BASF and 3M (NYSE:MMM).

We have a price estimate of $39 on Dow Chemicals’ stock, which is well ahead of the current market price.

See our full analysis for Dow Chemicals’ Stock

Dow refuses to accept any liability for Bhopal; Opposition grows in the U.K.

The Indian government has been seeking additional compensation from Dow for the victims of 1984 disaster, which maimed more than 100,000 people, and for repairing the damage to environment because of seepage of the deadly chemicals polluting the groundwater around the defunct plant in Bhopal. But Dow recently declined the alleged past residual liability of its wholly owned subsidiary, Union Carbide Corporation, and refused to submit to jurisdiction of any Indian Court, holding the 1989 settlement of $470 million as full and final. ^[1] But now the Indian Olympic Association has formally objected to London Olympic Games’ sponsorship deal with Dow Chemical. ^[2]

The opposition to Dow’s sponsorship deal is now growing in the UK as well with London mayoral election candidate Ken Livingstone and Tessa Jowell MP from the Labor party, Simon Hughes from Liberal Democrats party as well as the Green Party joining the opposition. Tower Hamlets council, an Olympic borough, has introduced a motion to reverse the Dow contract, which is likely to be passed. ^[3]

What Dow can potentially lose?

Through the worldwide sponsorship agreement, Dow aims to gain construction sales in host cities and boost brand awareness in emerging markets. Heinz Haller, Dow’s executive vice president, had estimated that this deal can bring as much as $1 billion in sales for the company.

The deal requires the Olympic hosts to give Dow products preference as long as they meet a project’s technical requirements and are competitively priced. Also, the Olympic agreement will help the country reach emerging countries like Russia (host for the 2014 winter games) and Brazil (host for the 2016 summer games). ^[4]

So while direct revenues are not at risk right now, the direction Dow’s Olympic relationship takes could influence its image in key markets in which Dow hopes to expand. This also puts at risk the revenue streams that Dow hopes to receive through favorable treatment from Olympic hosts owing to its long-term relationship with Olympics.

You can drag the trend lines in the modifiable charts above to see the impact of these trends on Dow’s stock value.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Bhopal gas tragedy: Won’t submit to Supreme Court jurisdiction, says Dow Chemicals [↩]
2. India to raise issue of Dow Olympics sponsorship [↩]
3. London politicians in battle formations over Dow stadium wrap controversy [↩]
4. Dow Chemical Agrees to Worldwide Sponsorship of Olympics Through 2020 [↩]