A merger between Dow Chemical Co. and Olin Corp. was announced on Friday, potentially creating a new industry leader in the chlorine sector. Dow announced that it will shift a large portion of its chlorine production to smaller chemical producer Olin, in a deal worth $5 billion.
According to executives from both companies, the merger will benefit both parties as it fits within their long term strategy. Dow and Olin stocks are expected increase significantly as a result of the transaction, while industry experts believe the move is also a good thing for consumers.
The union between the two companies will give birth to an industry leader, since their combined revenues get close to $7 billion. Once the sale is done, Dow shareholders will be holding a 50.5 percent simple majority of Olin shares, the rest remaining to previous Olin shareholders.
For Dow, the merger means the spin-off of its Chlor-Alkali and Derivatives businesses – such as Global Epoxy and Global Chlorinated Organics – to the smaller Missouri based Olin Corp. The group will make use of Dow’s large supply of ethylene to become the top chlor-vinyl manufacturer in the US.
“By combining Dow’s world-class assets and people with Olin, we are creating a premier company with the scope and capabilities to optimally leverage long-term growth opportunities in the marketplace and generate significant shareholder value,” Dow CEO Andrew N. Liveris told reporters. “Our drive is to get better, not bigger.”
Practically, Dow will become one of Olin’s biggest customers, while at the same time offering the smaller partner all the financial support it needs to keep the goods flowing to the petrochemical maker. Olin will see its business grow significantly, as it will be having more than 6,000 employees and 29 facilities spread across 9 countries.
The price fluctuations in the oil market had their impact on the revenues of both companies. While Dow still recorded consistent growth for its industrial products output, such as plastics, prices in Western Europe markets declined due do the recent US dollar rally. Dow executives also expect that the unstable oil prices will start impacting their income soon.
At the same time, Olin suffered greatly since oil prices began to fall. The company saw its revenues drastically diminish as a result of lower prices for its chlorine and caustic-soda products. They have been in discussions with Dow over a possible merger since December 2013, when the Michigan petrochemical giant announced its intention to spin off its iconic chlorine business.
Dow’s portfolio includes chemical, advanced materials, agrosciences and plastics businesses, according to their official website, and is active in more than 180 countries. Its products end up helping a lot of other industries, like electronics, water, coatings, packaging and agriculture. It has over 53,000 employees in 201 production facilities all over the world and the company’s 2014 sales exceeded $58 billion.
By comparison, Olin Corporation is a much smaller business, focusing on three industry segments, represented by Chemical Distribution, Winchester and Chlor Alkali Products. Chemical Distribution takes care of manufacturing and distributing bleach products, Winchester produces several types of small caliber ammunitions, while Chlor Alkali Products manufactures a variation of chlorine-based products.
Image Source: Khaleej Times
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