Long pressured by activist investors including Dan Loeb, Dow Chemical announced on Friday that the board had approved a deal calling for Dow to merge its chlor-alkali unit with Olin Corporation to create an industry-leading business with revenues around $7 billion. The merger has a taxable equivalent value of $8 billion to Dow. Moreover, the new business is highly complementary to the strategic objectives of both firms, and has potential to enhance long-term value for both Dow and Olin shareholders.
Of note, Olin anticipates reaching annualized cost synergies of at least $200 million through the deal, all of which should be fully realized within 36 months
Dow’s management notes the transaction is a significant achievement in the strategic transformation of the firm into a focused manufacturer of high value products based on integrated and innovative value chains, such as Dow’s advantaged ethylene and propylene derivatives.
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More on the Dow Chemical – Olin deal
The Dow – Olin deal involves $2 billion in cash, $2.2 billion in Olin common stock and close to $800 million of assumed pension and other liabilities. The statement from the firms noted that Dow Chemical shareholders will end up receiving 50.5% of Olin’s shares.
The strategic relationship built by this transaction will enable Dow Chemical to continue to benefit from its integration efficiencies in its chlorine unit for downstream applications. Olin is greatly expanding its downstream portfolio of chlorinated products and will benefit from low-cost ECU production.
When the deal is finalized, Olin will more than double in size, and will see incremental growth as a result of the merged firms’ product and process technologies, networks and logistics.
Dow’s spin off of chlor-alkali unit comes after years of shareholder pressure
As has been reported by ValueWalk, activist investors including Dan Loeb’s Third Point have been pressing Dow to take steps to increase shareholder value for some time now. Analysts note that this spin off of a major unit comes more than nine months after Dow Chemical management agreed to search for strategic alternatives for the division to unlock shareholder value.