Dow Chemical Co. is combining a large part of its chlorine value chain with specialty chemicals and ammunition maker Olin Corp. to create a global materials firm with annual sales of almost $7 billion.
The combination includes Dow's global epoxy business and units that make feedstocks used in PVC production. The Dow businesses to be spun off have annual sales of about $5 billion and employ almost 2,000 at 11 manufacturing sites worldwide.
Shareholders in Midland, Mich.-based Dow will own 50.5 percent of the new firm with shareholders of Clayton, Mo.-based Olin owning the remaining 49.5 percent. The transaction is expected to be approved by Olin shareholders by the end of the year, officials with both firms said in a March 27 news release. The combination is expected to create at least $200 million in annual synergies and cost savings.
Olin posted sales of $2.24 billion in 2014, down 11 percent vs. 2013. Chlor-alkali products – including PVC precursor chlorine - generated about 56 percent of the firm's 2014 sales, with the Winchester ammunition business contributing about 32 percent.
Dow first put the chlorine-related businesses up for sale or spinoff in December 2013. “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 at the time.
In the March 27 release, Liveris said that “by combining Dow's world-class assets and people with Olin, we are creating a premier company with the scope… [to] leverage long-term growth opportunities.”
Olin Chairman and CEO Joseph Rupp added that the transaction “is a natural fit to our strategic objectives – creating a sustainable, long-term growth platform and enhanced shareholder and customer value.”
In a separate deal, Dow will supply Olin with ethylene feedstock for a 20-year period. Officials said that both Dow and Olin will benefit from long-term, sustainable physical integration.
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. Dow sells most of its North American VCM and EDC output to PVC makers in the region.
Dow has been pressured by activist investor Third Point LLC to improve its profitability by splitting off or shedding non-essential parts of its business.
Dow ranks as one of the world's largest plastics and chemicals makers. In 2014, the firm posted sales of almost $58.2 billion, up almost 2 percent vs. 2013. Dow employs 53,000 at 201 sites worldwide.
Initial Wall Street reaction to the Dow-Olin deal was positive, sending Dow's per-share stock price up more than four percent to $48.40 and leading Olin's per-share price soaring almost 20 percent to $32.50 in early trading March 27.
