By Alison Sider and Chelsey Dulaney
Dow Chemical Co. on Friday said it would split off a significant
portion of its chlorine business and merge it with Olin Corp. in a
deal valued at $5 billion.
Dow's move away from chlorine, which it has produced since its
founding more than a century ago, is part of a broader strategic
shift by the chemical giant from the increasingly commoditized
business of turning oil and natural gas into basic chemicals to a
focus on higher-margin products.
The company had announced its intention to shed the chlorine
business in December 2013, and executives from Dow and Olin on
Friday said the two companies had been discussing an arrangement
ever since.
After the merger is completed, Dow shareholders will hold about
50.5% of Olin, while Olin shareholders will own about 49.5%. The
deal's value of $5 billion includes $2 billion in cash, which Dow
will receive; about $2.2 billion in Olin stock; and $800 million,
which reflects the assumption of pension and other liabilities.
With $2.2 billion in revenue last year, Olin is a fraction of the
size of Dow, which had more than $58 billion in revenue in
2014.
Dow Chief Executive Andrew Liveris said the deal puts the
company over its target to divest itself of $7 billion to $8.5
billion in nonstrategic businesses, even as it keeps a steady
supply of low-cost chlorine flowing to Dow's other businesses. The
two companies will also have ongoing supply agreements as part of
the deal.
"Our drive is to get better, not bigger," Mr. Liveris said in an
interview. Moving much of the chlor-aklali business out of its
portfolio will help Dow "move up the value chain," he said.
The move comes after Dow faced 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.
The petrochemical maker has benefited from robust growth for its
plastics and other industrial products recently, offset in part by
price declines in Western Europe largely related to the impact of
the strong dollar. Languishing oil prices haven't yet cut into
Dow's earnings, but the company has said it isn't immune to
fuel-price swings or unfavorable exchange rates.
For its part, Olin saw a decline in chlorine and caustic-soda
shipments, along with lower prices, for part of last year. But
Chief Executive Joseph Rupp in February said he expects the
business to improve this year and called a trough to the cycle.
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.
Even as Dow has looked to move away from commodity businesses
like chlorine, Olin has looked to expand. Mr. Liveris on Friday
said Olin was one of several bidders in the mix right from the
start.
"Within 24 hours of announcement he put a phone call into me and
said 'this makes a lot of sense'," Mr. Liveris said of Mr.
Rupp.
Olin, for its part, expects to save at least $200 million a year
as a result of its increased scale. Mr. Rupp said in an interview
that the deal would give the new company more outlets for its
products, along with "a large, stable customer" in Dow
Chemical.
Write to Alison Sider at alison.sider@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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