Dow to spin off chlorine business to Olin; USD5 bn deal

In its bid to focus on higher margin products, Dow Chemical will separate a significant portion of its chlorine value chain and merge that new entity with Olin in a transaction that will create an industry leader with revenues approaching US$7 billion. The terms of the agreement call for Dow to separate its US Gulf Coast chlor-alkali and vinyl, global chlorinated organics and global epoxy businesses, and then merge these businesses with Olin in a transaction valued at US$5 billion. The merger will result in Dow shareholders receiving approximately 50.5% of the shares of Olin, with existing Olin shareholders owning approximately 49.5%.

Dow’s move away from chlorine, which it has produced since its founding more than a century ago, is part of a broader shift by the chemical giant to focus on higher-margin products rather than the increasingly commoditised business of turning oil and natural gas into basic chemicals. The company had disclosed its intent to shed the chlorine business in December 2013.

Andrew N. Liveris, Dow’s Chairman/CEO Dow says the proposed deal puts his company over a target to divest itself of between US$7 billion to US$8.5 billion in non-strategic businesses, and guarantees it a steady supply of low-cost chlorine for Dow’s other businesses.

Dow has faced criticism from shareholder activist hedge fund Third Point LLC, which began pressuring Dow in early 2014 to pursue a break-up that would go further than the restructuring it had already outlined. Last year, Dow added two directors to its board who were proposed by Third Point, along with two other independent directors favoured by Dow.

Following the completion of the transaction, Olin will be an industry leader in chlor-alkali and derivatives – benefiting from the combination of complementary businesses, significant scale, integration, cost-advantaged feedstocks, and a broad and diverse end-uses portfolio. Expected cost synergies of the transaction include network optimisation which will facilitate output expansion, significant logistics savings and benefits, and the potential for expansion of existing products produced by Olin and Dow into additional geographies and to additional customers. Annual revenues of the combined business are anticipated to be approximately US$7 billion The transaction is subject to a vote by Olin shareholders and is expected to close by year-end 2015.

In a separate, arms-length transaction, Dow and Olin agreed to a 20-year long-term capacity rights agreement for the supply of ethylene by Dow to Olin, in which Dow will receive up-front payments and, in return, Olin will receive ethylene at co-investor, integrated producer economics. The agreement is additive to the financials outlined above for the chlorine value chain transaction.

“By combining Dow’s world-class assets and people with Olin, we are creating a premier company with the scope and capabilities to optimally leverage long-term growth opportunities in the marketplace and generate significant shareholder value,” Liveris said. “We have jointly created a solid foundation for success for Olin, driven by the benefits of greater scale, an enhanced ability to capitalize on globally advantaged cost positions backed by US shale gas economics, technology advantages, broader market access and significant envelope integration.”

Dow will be an important anchor customer of Olin as it works to grow the acquired business. Olin will have a strong capital structure and cash flow to support growth and return of capital to shareholders. It will employ approximately 6,000 employees at 29 operating sites in 9 countries.

Olin is a manufacturer concentrated in three business segments: Chlor Alkali Products, Chemical Distribution and Winchester. Chlor Alkali Products, with eight US manufacturing facilities and one Canadian manufacturing facility, produces chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products and potassium hydroxide.


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