Dow Chemical is to separate a significant portion of its chlorine value chain and merge it with Olin Corporation in a transaction that will create a specialised chlor-alkali business worth $7bn.
The transaction has a tax efficient consideration of $5bn, and a taxable equivalent value of $8bn to Dow and Dow shareholders.
According to a statement from the companies, the move will be ‘highly complementary to the strategic objectives of both companies, with significant potential to enhance value for both Dow and Olin shareholders, and create substantial benefits for customers’.
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 receiving approximately 50.5% of the shares of Olin, with existing Olin shareholders owning approximately 49.5%.
The transaction is valued at $5bn, and includes $2bn of cash and cash equivalents to be paid to Dow; an estimated $2.2bn in Olin common stock using the Olin stock value as of close on March 25, 2015; and approximately $800m 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 $200m in projected annual synergies and cost savings.
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.
Expected cost synergies of the transaction include network optimization which will facilitate output expansion, significant logistics savings and benefits, and the potential for expansion of existing products produced by Olin and Dow into additional geographies and to additional customers.
Annual revenues of the combined business are anticipated to be approximately $7bn and EBITDA is expected to be $1bn on a 2014 pro forma basis, excluding synergies. The transaction is subject to a vote by Olin shareholders and is expected to close by the end of this year.
“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,” said Andrew N. Liveris, Dow’s chairman and chief executive officer.
“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 U.S. shale gas economics, technology advantages, broader market access and significant envelope integration.”
In a separate, arms-length transaction, Dow and Olin have 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 costs.
“This transaction is a natural fit to our strategic objectives – creating a sustainable, long-term growth platform and enhanced shareholder and customer value,” said Joseph D. Rupp, Olin’s chairman and chief executive officer.
“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. We are excited to combine the strengths of our businesses and capitalize on the significant opportunities inherent in this transaction.”