NEW YORK (The Deal) -- Dow Chemical (DOW) - Get Report, which has been seeking to shed lower-margin units, on Friday announced plans to merge its chlorine business with Olin Corp. (OLN) - Get Report in a deal valued at about $5 billion.
Terms of the deal, a so-called Reverse Morris Trust transaction, call for Dow to separate its U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and global epoxy businesses and merge those units with Clayton, Mo.-based Olin. After the deal closes, existing Dow shareholders will have a 50.5% stake in Olin.
The deal includes $2 billion in cash to be paid to Dow and Olin shares worth about $2.2 billion, with Olin also assuming about $800 million in debt. The companies said they believe they will be able to extract at least $200 million in annual synergies and cost savings from the deal.
The deal is part of a broader campaign by Midland, Mich.-based Dow to refocus itself on higher-margin businesses. Dow -- which under pressure from Dan Loeb's hedge fund Third Point LLC, which has two board seats -- has pledged to divest more than $7 billion in assets.
Dow Chairman and CEO Andrew Liveris said the deal marks "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."
In December, the company said it would sell its sodium borohydride business and polyolefin films plant in Ohio for $225 million.
After the deal, Olin will be a $7 billion-sales supplier of chlor-alkali products and derivatives, with more than 6,000 employees, operations in nine countries and pro-forma Ebitda (earnings before interest, taxes, depreciation and amortization) exceeding $1 billion. The two companies have agreed to a 20-year capacity agreement for the supply of ethylene by Dow to Olin in which Dow will receive upfront payments and, in return, Olin will receive ethylene at a fixed price.
Olin Chairman and CEO Joseph Rupp called the transaction "a natural fit to our strategic objectives," saying it would create a long-term growth platform with the scale to compete internationally.
"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," Rupp said. "We are excited to combine the strengths of our businesses and capitalize on the significant opportunities inherent in this transaction."
Olin will continue to be led by Rupp, with three new directors designated by Dow to be added to the company's nine-person board. The deal is subject to Olin shareholder approval and is expected to close by year's end.
On Friday morning, shares of Olin surged 20% to $32.71, while Dow's stock rose 4% to $48.32.
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