Dow Chemical strikes $5 billion chlorine deal with Olin

Dow Chemical Co. agreed to sell almost all of its chlorine business, the world’s largest, to Olin Corp. in a $5 billion deal as it pares less profitable products.

The transaction will leave Dow investors holding 50.5 percent of the enlarged Olin, while Olin shareholders will own the rest, the companies said Friday in a statement.

The move also means Dow Chairman and CEO Andrew Liveris is set to exceed his target of selling $7 billion to $8.5 billion of assets. The company is focused on value-added products such as genetically modified corn seed and plastics for autos and packaging.

The Midland, Michigan-based company is parent to Indianapolis-based Dow AgroSciences LLC, which is likely to become a stand-alone public company in the next three years, according to some Wall Street analysts

Dow was founded in 1897 as a producer of bleach, which is made from chlorine. Chlorine, in turn, is produced in tandem with caustic soda by running electricity through brine, the kind of cyclical, low-margin activity the company has sought to divest in recent years.

“This is Dow’s oldest business and our most commoditized business,” Dow Vice Chairman Jim Fitterling said Friday.

Olin is North America’s oldest maker of chlorine and had been investing in its core business as it looked for a way to become an industry leader, its CEO Joseph Rupp said in an interview.

The deal transfers assets generating $4.5 billion of annual revenue to Clayton, Missouri-based Olin and increases the number of its chlor-alkali products to 18 from three. Olin plans to issue $2 billion of debt to finance the merger.

Olin also makes Winchester ammunition, its biggest business by revenue after chlorine. Winchester is a very profitable business and will be retained for at least two years following the Dow transaction, said Rupp, who will continue at Olin along with the current management. Dow will get three directors on Olin’s board.

Shares of Dow, the largest U.S. chemical company, were up 2.9 percent, to $48.21 each friday morning, while Olin shares gained 21 percent, to $32.90.

Dow announced its plan to separate the chlorine business in December 2013. The following month activist investor Dan Loeb disclosed his hedge fund Third Point LLC had taken a stake and called for a spinoff of Dow’s petrochemical business to improve profitability. Dow agreed in November to give Third Point two board seats.

The Olin deal shows how “Dow continues to serve as its own best activist,” Liveris said on a conference call on Friday.

The deal is expected to be completed by the year-end, and will be structured as a tax-efficient Reverse Morris Trust. Dow will receive $2 billion of cash and cash equivalents and Olin common stock valued at $2.2 billion before Friday’s announcement. Olin also will assume about $800 million of pension and other liabilities.

Olin will get Dow’s chlor-alkali and vinyl assets on the U.S. Gulf Coast, its global chlorinated organics business and the global epoxy business. Dow will become one of Olin’s largest chlorine customers. It will retain chlorine assets in Europe and Brazil and some capacity in Texas that’s integrated with the polyurethanes business, Fitterling said.

In a separate transaction, Dow agreed to supply Olin with ethylene from the U.S. Gulf Coast for 20 years.