Dow May Exit Some Businesses

Dow Chemical is shifting several major polymer operations into a new business group where they will be evaluated as candidates for a joint venture with other companies or for outright sale.

The new group, called Dow Portfolio Optimization, will include Saran products, synthetic rubber, polycarbonate, plastic compounds, and specialty copolymers. Together, the operations have annual sales of close to $2 billion. Dow, which had almost $54 billion in sales last year, says it expects to add other businesses to the portfolio.

The group is being created at a time of transformation for Dow, the largest U.S. chemical maker. Late last year, the company announced plans to sell a 50% share in its commodity chemicals business to Kuwait's Petrochemical Industries Co. (PIC). Dow wants to use some or all of the $9.5 billion it will gain from that sale to acquire less cyclical companies or businesses.

In a research report released last week, Hassan I. Ahmed, an analyst with HSBC Securities, said Dow's likely acquisition targets are small- to mid-sized U.S. companies involved in markets such as coatings, fuel additives, catalysts, or water treatment. Examples of such firms include Albemarle, W.R. Grace, Valspar, and Nalco.

The new portfolio optimization group will be headed by longtime Dow executive George J. Biltz. Until recently, Biltz ran Dow's specialty plastics and elastomers unit, home of all of the operations now under evaluation.

Balaji B. Singh, president of the Houston-based consulting firm Chemical Market Resources, says Dow is rethinking the five operations as part of its shift in focus from products to markets. The first step in that shift was moving many of its commodities to the PIC venture. "Now they are taking another look at what they have and trying to make a better market-facing company," he says.

Although Dow says operations might be sold, Singh doesn't think that will happen in all cases. Pointing to Dow's new market-focused footwear business, he asks, "How can you run a footwear business without styrene-butadiene rubber?" But given the footwear industry's Asian center of gravity, he says, Dow might seek an Asian partner in synthetic rubber.