For the third time in three months, Dow Chemical Co. has taken a step that could lower the profile of its plastics businesses.
On Feb. 25, officials at Midland, Mich.-based Dow announced the firm might sell, realign or form joint ventures with several of its plastics units. Those units - which will be placed into the new Dow portfolio optimization business group - include polycarbonate, compounds and blends, specialty copolymers and Saran-brand polyvinylidene chloride resins and specialty films.
``Systematic portfolio management ... sits right at the heart of long-term shareholder value creation,'' Dow Chairman and Chief Executive Officer Andrew Liveris said in a news release.
Businesses currently included in the group have annual sales of about $2 billion. Officials said it was difficult to estimate the number of employees and plant sites affected, because numerous Dow plants make some products that are in the new group but also make others that are not included.
The new unit will be led by George Biltz, a 29-year Dow veteran who currently heads Dow's specialty plastics and elastomers business. More businesses - both plastic and nonplastic - eventually could be added to the portfolio optimization group, officials said.
``Dow as a company is really on the strategic move right now,'' Biltz said in a Feb. 29 telephone interview. ``This is about far more than just plastics, although the first group of businesses included does have a strong plastics focus.''
The latest move is another part of Dow's ``asset-light'' strategy. In December, this strategy yielded two major plastics-related moves - the placing of Dow's polyethylene, polypropylene and PC assets into a joint venture with Kuwaiti-owned Petrochemical Industries Co., and the exit of Dow's ABS resin business from all markets but automotive. Dow's PC assets will be placed in the portfolio optimization unit until the PIC deal closes later this year, officials said.
Biltz singled out the Saran unit as an example of possible strategic change.
``Saran is used in a lot of packaging applications, but it's looked at as a stand-alone product,'' he said. ``We have to ask if that's the best way to run it or if we should look at other ways to use it in other packaging applications.''
Dow sold Saran Wrap and other consumer products to S.C. Johnson & Son Inc. in 1997, but continues to use the Saran trade name. Saran Wrap no longer is made with Saran-brand resin.
Biltz added that decisions on whether to include a product in portfolio optimization go beyond profitability.
``The easier cuts to make are the ones that are financially driven,'' he said. ``Financial fit is one element of this discussion, but a strategic fit is more complicated. We have to look at where our company and society in general are headed.
``Just like in the joint venture [with PIC], we're looking at the megatrends of the world and where material science will play a role and where Dow can be more successful.''
Dow plastic products not currently in the new group include polyurethane, latex, epoxy, water-soluble polymers and synthetic rubber. Biltz declined to comment on the future of these products, but he did say that Dow's Engage-brand and Infuse-brand specialty resins - as well as products used in the wire and cable market - aren't likely to be added to the new business.
``The [PIC] joint venture got most of the commodities, now Dow is assessing what's left over,'' said Balaji Singh, president of Chemical Market Resources consulting firm in Houston. ``Dow is repositioning itself to face individual markets. It should be a positive move for them.''
Dow is looking to improve its profit in 2008, after seeing that number slide almost 23 percent in 2007 to less that $2.9 billion. The drop occurred even as Dow's sales increased 9 percent to $53.5 billion.
Pretax profit in Dow's basic plastics unit - including PE, PP and polystyrene - was flat in 2007. In performance plastics - including PC and Saran - pretax profit for the year fell 15 percent. Combined, Dow's plastics businesses accounted for almost 52 percent of the firm's total sales in 2007.
On Wall Street, Dow's per-share stock price was above $46 in early October, but closed at just under $39 on Feb. 28.