- Alison SiderThe Wall Street JournalCANCEL
- Chelsey DulaneyThe Wall Street JournalCANCEL
Updated March 27, 2015 9:56 a.m. ET
Dow Chemical Co. on Friday said it would split off a significant portion of its chlorine business and merge it with Olin Corp. in a deal valued at $5 billion.
Dow’s move away from chlorine, which it has produced since its founding more than a century ago, is part of a broader strategic shift by the chemical giant from the increasingly commoditized business of turning oil and natural gas into basic chemicals to a focus on higher-margin products.
The company had announced its intention to shed the chlorine business in December 2013, and executives from Dow and Olin on Friday said the two companies had been discussing an arrangement ever since.
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After the merger is completed, Dow shareholders will hold about 50.5% of Olin, while Olin shareholders will own about 49.5%. The deal’s value of $5 billion includes $2 billion in cash, which Dow will receive; about $2.2 billion in Olin stock; and $800 million, which reflects the assumption of pension and other liabilities. With $2.2 billion in revenue last year, Olin is a fraction of the size of Dow, which had more than $58 billion in revenue in 2014.
Dow Chief Executive Andrew Liveris said the deal puts the company over its target to divest itself of $7 billion to $8.5 billion in nonstrategic businesses, even as it keeps a steady supply of low-cost chlorine flowing to Dow’s other businesses. The two companies will also have ongoing supply agreements as part of the deal.
“Our drive is to get better, not bigger,” Mr. Liveris said in an interview. Moving much of the chlor-aklali business out of its portfolio will help Dow “move up the value chain,” he said.
The move comes after Dow faced criticism of its structure from activist hedge fund Third Point LLC, which has pressured Dow to break apart its petrochemicals business from its specialty-chemicals segment. Dow agreed in November to appease the firm by adding two directors to its board who were proposed by Third Point, along with two other independent directors who were favored by Dow.
The petrochemical maker has benefited from robust growth for its plastics and other industrial products recently, offset in part by price declines in Western Europe largely related to the impact of the strong dollar. Languishing oil prices haven’t yet cut into Dow’s earnings, but the company has said it isn’t immune to fuel-price swings or unfavorable exchange rates.
For its part, Olin saw a decline in chlorine and caustic-soda shipments, along with lower prices, for part of last year. But Chief Executive Joseph Rupp in February said he expects the business to improve this year and called a trough to the cycle.
The new entity, which will include Dow’s U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and epoxy businesses, is expected to have revenue of nearly $7 billion and will be an industry leader, the companies said.
Even as Dow has looked to move away from commodity businesses like chlorine, Olin has looked to expand. Mr. Liveris on Friday said Olin was one of several bidders in the mix right from the start.
“Within 24 hours of announcement he put a phone call into me and said ‘this makes a lot of sense’,” Mr. Liveris said of Mr. Rupp.
Olin, for its part, expects to save at least $200 million a year as a result of its increased scale. Mr. Rupp said in an interview that the deal would give the new company more outlets for its products, along with “a large, stable customer” in Dow Chemical.
Write to Alison Sider at email@example.com and Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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