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Dow to merge chlor-alkali and derivatives with Olin in deal valued at $5 billion

March 27, 2015
Energy & Chemical Value Chain
Dow Chemical and Olin (Clayton, MO) have entered into a definitive agreement under which Dow merge its chlor-alkali and derivatives business with Olin in a transaction valued 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 Reverse Morris Trust transaction. The merger will result in Dow shareholders owning about 50.5% of the shares of Olin, with existing Olin shareholders owning about 49.5%. The boards of directors of both companies have approved the deal. The $5-billion transaction includes $2.0 billion of cash and cash equivalents 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. In addition, by virtue of the joint share ownership, both sets of shareholders will benefit from a minimum of $200 million in projected annual synergies and cost savings. Dow had announced at the end of 2013 that it is carving out a $5-billion/year chunk of its chlorine value chain for disposal as part of the company’s long-term shift to higher-margin, noncyclical activities. The transaction is subject to a vote by Olin shareholders and is expected to close by the end of 2015. 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, excluding synergies.
 
Olin currently has three business segments—chlor alkali products, chemical distribution and Winchester. Chlor alkali products, with 8 US manufacturing facilities and one Canadian manufacturing facility, produces chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. Winchester produces and distributes sporting ammunition, law enforcement ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges. Following the completion of the transaction, Olin will be an industry leader in chlor-alkali and derivatives — benefiting from the combination of complementary businesses, significant scale, integration, cost-advantaged feedstocks, and a broad and diverse end-uses portfolio. 
 
“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—with a deal structure designed to maximize total shareholder return. With this transaction we will exceed our target to divest $7 billion to $8.5 billion of non-strategic businesses and assets. This achievement will allow us to have an ongoing focus to continue to enhance shareholder remuneration, reduce debt and continue to invest in future growth in our high priority and high margin businesses,” Liveris says.
 
Olin will become a leading, low-cost global player in chlor-alkali and derivatives while enhancing its presence in key geographies, and will more than double its scale. Olin will continue to be led by chairman and CEO Joseph Rupp and a senior management team comprised of 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 agreed to a 20-year long-term capacity rights agreement for the supply of ethylene by Dow to Olin, in which Dow will receive up-front payments and, in return, Olin will receive ethylene at co-investor, integrated producer economics. The agreement is additive to the financials outlined above for the chlorine value chain transaction. The combined company will utilize an integrated supply of ethylene from Dow’s production grid on the US Gulf Coast to be a sustainable, integrated chlor-vinyl producer.
 
By Deepti Ramesh
 

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