Dow Chemical to merge part of chlor-alkali ops with Olin in $5bn deal

Stefan Baumgarten

27-Mar-2015

Dow Chemical to merge part of chlor-alkali ops with Olin in $5bn dealHOUSTON (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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