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Dow Chemical to separate chlorine business

By: Frank Esposito

December 2, 2013

Dow Chemical Co. is spinning off what it calls “a significant portion” of its chlorine value chain, including its global epoxy business and units that make feedstocks used in PVC production.

The businesses to be spun off have annual sales of about $5 billion and employ almost 2,000 at 11 manufacturing sites worldwide. The assets “are being carved out for future transactions,” officials with Midland, Mich.-based Dow announced on Dec. 2.

“These businesses have served us well over decades, but are serving markets that Dow has exited over time,” Dow Chairman and CEO Andrew Liveris said. “We are therefore right-sizing our upstream integration to match the downstream focus that we started a decade ago.”

Dow has retained financial advisers to explore “all separation alternatives” for these businesses, including potential ownership structures and partnerships such as joint ventures, spin-offs and divestitures. The firm expects to execute a deal within the next 12-24 months.

“These transactions can be in pieces or on the whole of the announced scope,” the company said in a news release.

After the spinoff, Dow executive Pat Dawson will serve as president of the epoxy business, while Clive Grannum will be president of chlorinated organics and Jim Varilek will be president of chlor-alkali and vinyl in North America.

Dow’s epoxy business includes plants in Freeport, Texas; and Roberta, Ga.; as well as four plants in Europe, two in Asia and one in Brazil. Epoxy is a thermoset resin that is often used as a coating material. The spin-off also includes the firm’s chlor-alkali, chlor-vinyl, chlorinated organics and brine operations.

The chlor-vinyl unit makes ethylene dichloride (EDC) and vinyl chloride monomer (VCM) feedstocks that other plastics firms use to make PVC resin. Ana Gamboa — a market analyst with IHS Chemical in Houston — said Dow sells most of its North American VCM and EDC output to PVC makers in the region.

Gamboa added that interest in the units being spun off could come from market players outside of North America that wish to establish a footprint in the region and take advantage of low energy costs.

One industry veteran said that a change in ownership for Dow’s PVC feedstock assets “shouldn’t be disruptive” to the PVC market. Looking forward, he added that Dow’s packaging franchise “continues to get high attention in Dow, and is leveraging technology, size and market skills…the brands are market leaders [and] Dow continues to invest and grow those businesses.”

The source added that although Dow’s moves will take the firm away from some of its longtime businesses, the decisions “are rationale, justifiable and positive for long term profitability.”

Dow recently sold its polypropylene licensing and catalyst business to W.R. Grace & Co. for $500 million. That sale included a PP catalyst plant in Norco, La. Dow earlier this year also said it wanted to sell its plastics additives business — which has annual sales of about $600 million — but later took that unit off the market after receiving inadequate offers.

In the first nine months of 2013, Dow posted sales of $42.7 billion — flat with the same period in 2012. But the firm’s profit doubled to $3.8 billion in the same comparison.

Dow ranks as one of the world's largest plastics and chemicals makers. The firm employs 54,000 worldwide and posted sales of about $57 billion in 2012.

On Wall Street, Dow’s per-share price closed near $38.60 on Dec. 5 — up more than 19 percent so far in 2013.