OLN Olin Corp

Dow Chemical Co. said Friday that it will split off a significant portion of its chlorine business and merge it with Olin Corp. in a deal valued at $5 billion.

The new entity, which will include Dow's U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and epoxy businesses, is expected to have revenue of nearly $7 billion and will be an industry leader, the companies said.

The move comes as Dow faces criticism of its structure from activist hedge fund Third Point LLC, which has pressured Dow to break apart its petrochemicals business from its specialty chemicals segment. Dow agreed in November to appease the firm by adding two directors to its board who were proposed by Third Point, along with two other independent directors who were favored by Dow.

Write to Chelsey Dulaney at chelsey.dulaney@wsj.com

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