Dow Chemical (DOW) - Get Dow, Inc. Report said Thursday it has a deal to sell its global ethylene acrylic acid, or EAA, business to SK Global Chemical, fulfilling one of the regulatory requirements to the company's proposed $130 billion merger with DuPont (DD) - Get DuPont de Nemours, Inc. Report .
Terms of the deal call for South Korea's SK Innovation to pay $370 million for the business, which makes resins used in the production of specialty plastics. The deal includes production assets located in Texas and Spain along with associated intellectual and product trademarks.
The business generates about $150 million in annual revenue and commands relatively strong margins, making it an attractive takeover target.
SK Innovation president Kim HyungKun in a statement said: "we will continue strategic investments to upgrade our business structure and in the long term we aim to be the leader in high-value-added chemicals for emerging markets including China."
For Midland, Mich.-based Dow, the sale was done with an eye towards a much larger deal. DuPont also has a large ethylene acrylic acid business, and shedding the Dow operation is part of the broader process of securing regulatory approval for the chemicals megadeal.
"Today's divestiture announcement marks significant progress in our discussions with the competition authorities," Dow chairman and CEO Andrew Liveris said in a statement. "We continue to work constructively with all of the relevant competition and regulatory authorities around the globe to address their questions and to obtain clearance for the proposed merger."
The deal with SK is conditioned on Dow and DuPont closing their merger. Terms also call for SK to honor particular customer and supplier contracts and other agreements.
Dow and DuPont announced plans to merge in December 2015, and the companies currently hope to win regulatory approval and close the transaction in the first half of this year. Within 18 months of closing, the companies intend to split into three more focused entities.
The companies are believed to be shopping other assets in the agriculture and industrial segments of their business in anticipation of potential regulatory divestiture requirements.
Dow is held in Jim Cramer's Action Alerts PLUS charitable trust portfolio. Cramer wrote in a note last month: "While the merger is undoubtedly a major catalyst, we stand behind our belief that DOW is an attractive investment as a combined entity with DuPont or on its own."