The Dow Chemical Company detailed the scope of a separation of a significant portion of its chlorine value chain. These assets are being carved out for future transactions, and represent up to $5 billion of total annual revenue, inclusive of sales on the merchant market and sales to support Dow’s downstream, value-added products. The scope includes approximately 40 manufacturing facilities at 11 sites, and nearly 2,000 employees.
“Today’s announcement represents a continuation of the shift of our Company toward downstream high-margin products and technologies that customers value, and generate consistently higher returns than cyclical commodity products. We are committed to prioritize our resources such that we maximize total shareholder return,” said Andrew N. Liveris, Dow’s chairman and chief executive officer.
“These businesses have served us well over decades, but are serving markets that Dow has exited over time, and we are therefore right-sizing our upstream integration to match the downstream focus that we started a decade ago,” Liveris added. “Separating these business units will allow us to further optimize the way they can be operated; and we believe different owners will be able to extract maximum value from these highly competitive assets and their related markets.”
The announcement outlines a clearly defined scope of businesses that are located in attractive regions and are backed by a low-cost energy position attractive for producers of chlorine-based chemicals such as caustic soda and PVC. Further, they are coupled with businesses that command industry-leading positions with world-scale assets and global capabilities.
Assets included in this carve-out are:
Dow’s U.S. Gulf Coast Chlor-Alkali and Chlor-Vinyl facilities in Plaquemine, LA, and Freeport, TX, including Dow’s interest in the Dow Mitsui Chlor-Alkali joint venture in Freeport, TX;
Dow’s Global Chlorinated Organics production facilities in Freeport, TX; Plaquemine, LA and Stade, Germany;
Dow’s Global Epoxy business, including assets in Freeport, TX; Roberta, GA; Rheinmuenster, Germany; Pisticci, Italy; Baltringen, Germany; Stade, Germany; Gumi, South Korea; Zhangjiagang, China and Guaruja, Brazil; and
Dow’s brine and select assets supporting operations in Freeport, TX and Plaquemine, LA; and energy operations in Plaquemine, LA.
In addition to these separation actions, the Company also announced that it will shut down approximately 800,000 tons of chlorine and caustic equivalent capacity in Freeport, Texas. The capacity being shut down will be replaced with supply from new facilities that will come online with the start-up of the Dow Mitsui joint venture in early 2014. The shutdowns will help maintain Dow’s balances and will be coordinated with the start-up of the joint venture.
Building on Dow’s proven track record of successfully completing complex carve-outs, Dow’s Executive Vice President Jim Fitterling will oversee the separation and transaction activities.
“Due to the highly integrated nature of the chlorine value chain, we are conscious not to leave any stranded costs or create negative synergies,” said Fitterling. “Further, we anticipate that any related transaction or transactions will include supply and purchase agreements between these units and the Company to support downstream products aligned with Dow’s strategic market focus.”
In addition, the following leaders with strong experience in the chlorine value chain will lead the carved out businesses, optimizing operations and ensuring business success in anticipation of transaction:
Pat Dawson, President – Epoxy
Clive Grannum, President – Chlorinated Organics
Jim Varilek, President – Chlor Alkali & Vinyl North America
Dow has retained financial advisors to explore all separation alternatives for these businesses, including potential ownership structures and partnerships such as joint ventures, spin-offs and divestitures, and expects to execute transaction activities related to these businesses within the next 12 - 24 months. These transactions can be in pieces or on the whole of the announced scope.
In the past 12 months, Dow has completed or announced transactions totaling $700 million, including the recently announced definitive agreement to divest its global Polypropylene Licensing & Catalysts business. In anticipation of this separation, the Company announced in October it had expanded its divestiture target to $3 billion – $4 billion in proceeds over the coming 18 to 24 months. In line with the Company’s stated commitments, Dow expects to direct proceeds of these transactions toward increasing shareholder remuneration, organic growth investments and additional interest expense reductions.