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Volume 91 Issue 49 | p. 7 | News of The Week
Issue Date: December 9, 2013 | Web Date: December 5, 2013

Dow Chemical Plots Course Away From Chlorine

Restructuring: Chemical company plans to dispose of businesses with combined revenues of $5 billion
Department: Business
Keywords: specialty chemicals, commodity chemicals, divestitures, mergers and acquisitions, M&A
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Dow plans to divest assets at this site in Freeport, Texas.
Credit: Dow
A photo of a chemical plant next to a small body of water.
 
Dow plans to divest assets at this site in Freeport, Texas.
Credit: Dow
Businesses To Be Sold:

U.S. chlorine operations, chlorinated organics, epoxy resins

Comprising:

11 manufacturing sites

~2,000 employees

$5 billion in annual sales (~9% of Dow’s annual sales)

6 billion lb of annual chlorine capacity

Number of years these businesses have resided within Dow:

Chlorine >100

Chlorinated organics >40

Epoxy resins >50

Setting up an exit from chemicals it has made for decades so it can focus on higher-growth sectors, Dow Chemical is carving out chlorine-related businesses with annual sales of $5 billion and moving them to a separate division. The company intends to sell the businesses, together or piecemeal, within the next 12 to 24 months.

The company revealed plans to divest two of the operations, epoxy resins and chlorinated organics, in July. The company now says it will also divest its chlor-alkali and chloro-vinyl assets in Freeport, Texas, and Plaquemine, La.; its interest in a chlor-alkali joint venture with Mitsui & Co.; brine assets; and energy operations in Plaquemine.

“These businesses are valuable and competitive within their industries today, which will be attractive for the right owner,” Dow CEO Andrew N. Liveris told stock analysts in a conference call. “However, the value propositions of these cyclical, commodity businesses no longer align with Dow’s future resource allocation.”

Dow’s chlorinated organics business is the world’s largest supplier of the dry-cleaning solvent perchloroethylene and the industrial solvent trichloroethylene. Its epoxies unit is one of the world’s largest producers of epichlorohydrin and epoxy resins used in coatings, adhesives, and composites.

The chlorine business was set up by Herbert Henry Dow himself more than 100 years ago. The company has been disengaging from chlorine since 2005, primarily by backing out of involvement in raw materials for polyvinyl chloride. It has closed chlorine capacity in Freeport and Alberta and intends to close another plant in Freeport that has been operating for 70 years, Liveris said. After the sale, Dow will still purchase about $1 billion worth of chlorine annually in the U.S. for its agricultural chemicals and polyurethanes businesses.

For Dow, the move away from chlorine chemistry is part of a long-term portfolio reshaping that kicked in with its purchase of the specialty chemical maker Rohm and Haas in 2009. Since then, the company has divested businesses with $10 billion in annual sales. Most recently it sold its poly­propylene catalysts business to W.R. Grace.

The company isn’t exiting only commodity chemicals. Last month, Dow pulled out of Dow Kokam, a joint venture that manufactures batteries for electric cars.

In deciding to divest low-growth commodities such as chlorine, Dow is following the lead of rival DuPont. This year, DuPont sold its automotive paint unit and unveiled plans to spin off most of its chemicals businesses into a new company.

Like DuPont, Dow has been sharpening its focus on what it considers higher-growth, high-margin businesses. In Dow’s case, these include acrylics, polyurethanes, performance plastics, agriculture, and electronic materials.

Dow intends to return the cash from the chlorine business sale to shareholders through dividends or share repurchases. It will also invest in organic growth and small, $50 million to $100 million acquisitions, Liveris said.

A major growth initiative for the company is the installation of capacity for ethylene, propylene, and derivatives on the U.S. Gulf Coast. Another is the $20 billion Sadara joint venture with Saudi Aramco, which is under construction in Saudi Arabia. During the conference call, company officials pledged they wouldn’t make another big-ticket purchase like Rohm and Haas.

Stock analysts have been receptive to Dow’s plan to exit chlorine. In a note to clients, Credit Suisse analyst John P. McNulty praised the move. “Overall, we view these announcements as positive for Dow as management continues to focus on its commitment to investors to divest noncore assets in order to enhance future growth and ultimately improve profitability and returns,” he wrote.

 
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