Dow, Carbide Ink $7.4 Billion Merger

12 February 2001 00:00  [Source: ICB Americas]

By Robert Brown

Following 18 months of negotiations with the European Commission (EC) and the Federal Trade Commission (FTC), the Dow Chemical Company has completed its $7.4 billion takeover of Union Carbide Corporation. Dow will now have a combined $28 billion in sales and generate an EBIT (operating income) of $3.1 billion.

"While the negotiations took longer than first imagined, we are pleased with the outcome and consider it a win-win for everyone involved," says Dow chairman and CEO, Michael Parker. To satisfy the EC and FTC, Dow will sell its global ethyleneamines business to a subsidiary of Huntsman Corporation and its global ethanolamines business and its North American Gas/Spec business to Ineos PLC. Total sales by both amines businesses reached about $200 million last year (related stories, pages 3 and 8). In addition, Union Carbide will divest its 50 percent ownership in Polimeri Europa, a polyethylene joint venture with Enichem, which had sales of roughly $1.3 billion in 2000. There is speculation, that Dow and Enichem could swap the polyethylene interest for Enichem's poly-urethane business, which has been up for sale for quite some time. Prior to the completion of the Carbide deal, Dow was rumored to be interested in the polyurethane assets along with Huntsman.

Dow must also divest its gas-phase polyethylene metallocene technology to BP Amoco. As part of the divestiture, BP will also receive all Dow patents and other assets that are solely related to gas-phase polyethylene processes using metallocene catalysts, including a license to Chevron Phillips Chemical.

Additionally, Dow has agreed to non-exclusively license BP with a right to sublicense other Dow technology that serves as a background to the divested technology in gas-phase polyethylene processes using metallocene catalysts. BP is also granted the sole right to sublicense Univation Technologies under certain Dow patents not previously licensed to Univation.

Pursuant to European Union undertakings, Dow says it also has agreed to license to interested parties on reasonable terms Dow metallocene background patents for use in gas-phase or slurry polyethylene processes. The company's proprietary solution polyethylene technology is in no way encumbered by the agreements.

Despite the loss of its gas-phase metallocene technology, Dow will gain 50 percent ownership of Univation Technologies, a polyethylene technology joint venture founded by Union Carbide and ExxonMobil Chemical. Additionally, Carbide will contribute its Unipol polyethylene process technology licensing and conventional catalyst businesses to Univation. Univation will now have an expanded and comprehensive technology program focused on the Unipol gas-phase process and all related catalysts to deliver economical solutions to its customers. The catalyst families include Ziegler-Natta and chrome-based, as well as metallocene and advanced catalyst systems.

Univation's polyethylene portfolio for new and existing plants now includes the Unipol gas-phase process technology; capacity expansion technologies, including super condensed mode technology to increase production at existing plants; the UCAT family of Ziegler-Natta and chrome-based catalysts to produce both narrow and broad molecular weight distribution polyethylene products important in the film, molding and extrusion markets; Exxpol metallocene technology to produce high performance linear-low-density (LLDPE) products for high strength film markets; and Exxpol metallocene technology to produce easy processing LLDPE products for film markets traditionally served by high pressure low-density polyethylene.

"Having a single-point interface and the full range of catalysts will improve Univation's ability to deliver better technology solutions for polyethylene process licensee's needs to grow and diversify their product slate," says Jim Harris, chairman of Univation and senior vice-president of ExxonMobil Chemical. "We are pleased to join with ExxonMobil in Univation Technologies," notes Ed Gambrell, business group president for Dow. "Univation is an important piece of the portfolio that Union Carbide brings to Dow."

Despite the substantial divestitures the deal necessitated, Dow said they were not unexpected. "Dow retained the strategic assets we valued," says Mr. Gambrell. "None of the remedies surprised us, and none changed the value of the deal."

Dow knew prior to its August 1999 announcement of the deal that there would be significant regulatory issues. "Carbide and Dow represent 100 percent of the ethyleneamines business in North America and a large percentage globally," says Mr. Parker. In addition, the overall complexity of the deal contributed to much of the delay.

"The FTC had to investigate more than 50 different products," notes Mr. Gambrell. The agency also had to learn the intricacies of technology licensing to better understand the BP and Univation agreements.

Agreeing that the deal was "worth the wait," Mr. Gambrell, said the agreements with regulators was "very favorable, even better than we expected going into it."

When announcing the merger, Dow said it anticipated roughly $500 million in cost savings following completion. The company now says its expects significantly higher numbers and will announce a new target in the next few months. One area, targeted for cuts will be personnel, where the company initially intended to cut about 4 percent. Mr. Parker now says the numbers will be higher.

PE Glycols--BASF Corporation will raise its list and off-list prices on all polyethylene glycols by 4c. per pound, effective March 5 or as contracts permit.

POLYETHYLENE--As of 2000, metallocene catalysts have captured nearly 7 percent of the world's total LLDPE market and consumption is expected to further increase at more than 25 percent annually over the next five years, according to a new study by Houston-based Phillip Townshend Associates Inc.

Global consumption of mPE resins has been virtually doublking every year since their commercialization in 1995," says Surinder Bahl, project manager for the study.

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