Dow Chemical to merge part of chlor-alkali ops with Olin in $5bn deal
Stefan Baumgarten
27-Mar-2015
HOUSTON
(ICIS)–Dow Chemical has agreed to separate a significant
portion of its chlor-alkali and downstream derivatives
businesses and merge them with Olin, with the transaction
valued at $5bn, the companies said on Friday.
The tax-efficient Reverse Morris Trust transaction would
create an industry leader with revenues of close to $7bn,
they said. Olin will more than double its scale and become a
“leading, low-cost global player” in chlor-alkali and
derivatives, they said.
The transaction is valued at $5bn, including $2bn of cash and
cash equivalents to be paid to Dow; an estimated $2.2bn in
Olin common stock using the Olin stock value as of close on
25 March; and about $800m of assumption of pension and other
liabilities.
Under the deal, Dow will separate its US Gulf Coast
chlor-alkali and vinyl and its global chlorinated organics
and global epoxy businesses, and then merge these businesses
with Olin.
The merger will result in Dow shareholders receiving about
50.5% of the shares of Olin, with existing Olin shareholders
owning about 49.5%.
Olin will continue to be led by its CEO Joseph Rupp and a
senior management team comprised of both Dow and Olin current
employees.
Dow will be an important anchor customer of Olin as it works
to grow the acquired business.
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, they
said.
The combined business had annual revenues of about $7bn and
earnings before interest, tax, depreciation and amortisation
(EBITDA) of $1bn on a 2014 pro forma basis, excluding
synergies.
The boards of directors of both companies approved the deal
but the agreement is still subject of a vote by Olin
shareholders and regulatory approvals. The companies expect
to close the transaction by the end of 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”.
“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,” said Dow CEO Andrew Liveris.
“We have jointly created a solid foundation for success for
Olin, driven by the benefits of greater scale, an enhanced
ability to capitalise on globally advantaged cost positions
backed by US shale gas economics, technology advantages,
broader market access and significant envelope integration,”
Liveris said.
With the deal, Dow would exceed its target to divest
$7-$8.5bn of non-strategic businesses and assets, he
added.
Olin CEO Joseph Rupp said: “This transaction is a natural fit
to our strategic objectives – creating a sustainable,
long-term growth platform and enhanced shareholder and
customer value.”
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