The global economic recession is taking its toll at Dow Chemical Co. as the plastics and chemicals firm announced Dec. 8 the elimination of 11,000 jobs globally.
Midland, Mich.-based Dow will cut 5,000 full-time jobs and 6,000 contractor positions, officials said. The firm also will close 20 plants permanently, sell off several nonstrategic businesses and temporarily idle 180 additional plants.
Plants to be idled represent about 30 percent of Dow's global production. Those 180 plants will be split almost evenly between North America and Europe. Officials said further details on plant closures and job cuts will be provided in early 2009.
Some details were available in a Dec. 5 filing with the Securities and Exchange Commission. Plastics-related closings listed in the release include:
* A plant making Tyrin-brand chlorinated polyethylene in Plaquemine, La.
* Plants making styrene monomer — a polystyrene feedstock — and styrene derivatives in Freeport, Texas; Pittsburg, Calif.; Terneuzen, Netherlands; and Varennes, Quebec. The closing in Terneuzen also includes a 110 million-pound-capacity PS plant.
* A plant making Nordel-brand ethylene propylene diene monomer synthetic rubber in Seadrift, Texas.
Dow will take a $700 million pretax charge in the fourth quarter of 2008 for the moves, which will result in annual operating cost savings of $700 million. In 2009, Dow also will reduce its working capital by $2 billion and lower its capital spending by $600 million.
Moving forward, Dow plans to focus on:
* Joint ventures and reducing assets.
* Performance products.
* Health and agriculture, advanced materials and other market-facing businesses.
``This is a new way of working at Dow, as a market-driven, technology-centric company,'' Dow Chairman and Chief Executive Officer Andrew Liveris said during a Dec. 8 teleconference. ``Shedding nonproductive assets will create agility in how we react to the marketplace.''
The 5,000 full-time job cuts represent 11 percent of Dow's current workforce. On the contractor side, the 6,000 eliminations equal 30 percent of Dow's current total.
``We've been on code red for the past two months, diving through analyses of market conditions,'' Liveris said. ``The entire industrial supply chain, outside of food and health, is in a recessionary model.''
However, Liveris was adamant that Dow will continue to pay out its regular cash divided, as it's done for every quarter since 1912.
``We will not break that string,'' he said. ``Not now, not on my watch.''
Liveris added that the scope of Dow's action speaks to the industry's uncertainty about its future.
``We have very little visibility going forward,'' he said. ``Dow has large, integrated sites that we can turn down, but not off, because that would create a lot of cost later on. We're going to pick those sites [to close or idle] with the least impact on businesses that are doing well, so we can minimize cash burn in uncertain times.
``Once we get some visibility, we'll be able to turn them back on quickly. This isn't a complete disruption. December and January isn't a bad time to have factories dialed down or off.''
Dow's largest integrated North American site is in Freeport, where the firm has 4,500 employees and 4,000 contract workers. The site makes PE, polypropylene and a host of chemical products. Texas media previously had reported that thousands of contractors would be let go in Freeport.
The cuts are coming as Dow is completing two major financial deals.
Its K-Dow joint venture with Petrochemical Industries Co. of Kuwait — which includes Dow's PE, polypropylene and polycarbonate businesses — is set to open its doors Jan. 1, but the venture's value has fallen by more than $1 billion since it was announced earlier this year.
Dow also is buying specialty chemicals and plastics additives maker Rohm and Haas Co. of Philadelphia for almost $19 billion. Dow's July bid for Rohm and Haas was more than 70 percent higher than Rohm and Haas' stock price at the time.
An industry veteran contacted by Plastics News said that he believes Dow's recent decisions have cost the firm at least $3 billion — by reducing the value of K-Dow by at least $1.5 billion and by not trying to reduce the bid for Rohm and Haas by at least $1.5 billion.
``Dow is short-changing themselves,'' the contact said.
Dow's nine-month sales for 2008 rose to $46.6 billion, a 19 percent increase over the year-ago period, but the firm's profit tumbled 13 percent to $2.1 billion.
Although the just-announced changes will be painful in the short-term, one former Dow executive said the cuts and acquisitions will pay off over time.
``I'm not sure where the cuts are going to come from, because that's a huge number and most of the outsourcing that Dow can do has already been done,'' the executive said.
``Dow may have overpaid for Rohm and Haas — they're like a kid in a candy store who can't keep a dollar in his pocket — but the company is going to be a juggernaut when the economy turns,'' he added. ``Dow will ride the crest of the wave.''
In a recent research note, consultant Balaji Singh wrote that Dow's ``current plant shutdowns and planned layoffs are necessary evils one could live without, but the situation demands it for a stronger future.''
Singh also pointed out that Dow's ``original core'' businesses of polyurethane and styrene-butadiene latex have remained intact, indicating that the firm is expecting an eventual comeback in the building and construction market.