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Business

Dow Chlorine Business Will Go To Olin

Restructuring: Deal continues Dow revamping, turns Olin into a new chemical leader

by Michael McCoy
March 27, 2015

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Credit: Dow
Olin will take over chlorine assets at Dow’s Freeport, Texas, plant, shown here.
Picture of a plant.
Credit: Dow
Olin will take over chlorine assets at Dow’s Freeport, Texas, plant, shown here.

Making good on its promise to exit the chlor-alkali business, Dow Chemical has struck a $5.0 billion deal to merge most of its chlorine and derivatives assets with the chlorine and ammunition maker Olin Corp.

The deal will be transformational for Olin, catapulting it into the upper ranks of the U.S. chemical industry with about $7 billion per year in annual sales, up from the $2.2 billion it reported last year. For Dow, the divestment will be one of the last steps in a restructuring program that includes the recent sales of Angus Chemical and its sodium borohydride business.

That program took place under the watchful eye of Third Point, an activist investment firm that criticized Dow for trying to balance commodities and specialties within the same company. Dow and Third Point reached détente last December with a standstill agreement that will put two Third Point nominees on Dow’s board.

At present, Dow is the world’s largest chlorine producer, whereas Olin is number five, according to a Dow presentation that accompanied the announcement. Although the deal doesn’t include Dow’s chlorine facilities in Australia, Brazil, and Germany, it will still make Olin the new global leader with almost 6 million tons per year of chlorine capacity.

The Dow businesses going to Olin include its U.S. Gulf Coast chlor-alkali and vinyl chloride operations, its chlorinated organics business, and its epoxy resins business. The transaction is being structured as a Reverse Morris Trust, which allows it to be tax-free.

Dow says the deal will bring it $5.0 billion, including $2.0 billion in cash, about $2.2 billion in Olin stock, and $800 million of assumed pension and other liabilities. After the transaction is complete, expected by the end of the year, Dow shareholders will own about 50.5% of Olin stock.

Separately, the two firms have signed a 20-year pact under which Olin will receive ethylene from Dow at an “integrated producer” cost for use as a raw material in its new businesses.

Overall, Olin expects to reap $200 million in cost savings by combining its chlor-alkali business with Dow’s. Dow Chief Executive Officer Andrew N. Liveris, meanwhile, says the agreement marks “a powerful shift in our portfolio toward targeted, integrated high-performance sectors and end markets.”

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