Dow to merge chlor-alkali and derivatives with Olin in deal valued at $5 billion
Dow Chemical has definitively agreed to merge most of its chlor-alkali and downstream derivatives business with Olin in a transaction that values the business at $5 billion. The terms of the agreement call for Dow to separate its US Gulf Coast chlor-alkali and vinyl, global chlorinated organics, and global epoxy businesses and then merge these businesses with Olin in a tax-free Reverse Morris Trust transaction. The business posted 2014 Ebitda of $640 million, meaning the deal values the assets at almost eight times Ebitda.
Dow shareholders will own about 50.5% of the shares of Olin, with current Olin shareholders owning about 49.5%. The boards of both companies have approved the deal, which is expected to close by the end of 2015.
The $5-billion transaction includes $2 billion in cash to be paid to Dow, an estimated $2.2 billion in Olin common stock using the Olin stock value as of close on 25 March, and about $800 million of assumption of pension and other liabilities. The deal is subject to a vote by Olin shareholders. Annual revenues of the combined business are anticipated to be about $7 billion, and Ebitda is expected to be $1 billion on a 2014 pro forma basis.
Olin will continue to be led by chairman and CEO Joseph Rupp and a senior management team comprising both Dow and Olin current employees. Olin’s board will consist of the existing nine Olin company directors and three new members to be designated by Dow.
In a separate transaction, Dow and Olin have agreed to a 20-year capacity rights deal for Dow to supply ethylene to Olin to cover ethylene dichloride and vinyl chloride monomer production. Dow will receive up-front capital payments, and, in return, Olin will receive ethylene at coinvestor, integrated producer economics.
“Supported by significant integration and scale, premier low-cost assets, an upgraded and diversified product mix, and valuable network and other synergies, we will be able to better serve and grow with our customers,” Rupp says. “We are excited to combine the strengths of our businesses and capitalize on the significant opportunities inherent in this transaction.”
Olin gains a leading North American position in chlor-alkali and a leading global position in epoxy resins.
Olin currently has three business segments—chlor alkali products, chemical distribution, and Winchester. Chlor-alkali products, with eight US manufacturing facilities and one Canadian manufacturing facility, produce chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products, and potassium hydroxide. Winchester produces and distributes ammunition. Dow will retain chlor-alkali assets outside of North America in Australia, Brazil, and Germany.
“We have jointly created a solid foundation for success for Olin driven by the benefits of greater scale, an enhanced ability to capitalize on globally advantaged cost positions backed by US shale gas economics, technology advantages, broader market access, and significant envelope integration,” says Andrew Liveris, Dow’s chairman and CEO. “This milestone is a powerful shift in our portfolio towards targeted, integrated, high-performance sectors and end markets that will drive further margin expansion, earnings growth, and return on capital.”
Dow says the deal allows it to exceed its target to divest $7–8.5 billion of nonstrategic businesses and assets.
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