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The transaction is subject to a vote by Olin shareholders and is expected to close by year-end 2015.

DOW-OLIN $5B DEAL: Midland Firm's Stock Price Jumps After Chlorine Spin-Off

March 28, 2015       Leave a Comment
By: Dave Rogers

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Dow stock spiked nearly three percent and Olin jumped 14 percent after the firms announced a multi-faceted, $5 billion deal to merge chlorine-related businesses.

Dow hit $47.76 at the end of trading Friday and Olin closed at $41 and reportedly added about $2 billion to the value of Dow.

Under the Dow Chemical and Olin Corporation agreement, Dow will separate a significant portion of its chlorine value chain and merge that new entity with Olin in a transaction that will create an industry leader with revenues approaching $7 billion.

Some media commentators noted that the deal is in line with ideas of Dan Loeb, of the hedge fund Third Point LLC, a major Dow stockholder, whose aggressive CEO Dan Loeb has pushed for Dow to divide operations into commodity petrochemicals and plastics.

"Dow continues to act as our own best activist (investor)," quipped Dow CEO Andrew Liveris in a conference call with major stockholders. The comment was interpreted as a dig at Loeb by writer Daniel Fisher of Forbes Magazine.

The transaction has a tax efficient consideration of $5 billion, and a taxable equivalent value of $8 billion to Dow and Dow shareholders, the Midland firm said.

According to company officials, it is complementary to the firms' strategic objectives, 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 U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and global epoxy businesses, and then merge these businesses with Olin.

The merger will result in Dow shareholders receiving approximately 50.5 percent of the shares of Olin, with existing Olin shareholders owning approximately 49.5 percent.

The transaction is valued at $5 billion, and includes $2.0 billion of cash and cash equivalents to be paid to Dow; an estimated $2.2 billion in Olin common stock and approximately $800 million 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 $200 million in projected annual synergies and cost savings.

The deal makes Olin an industry leader in chlor-alkali and derivatives -- with 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 $7 billion and EBITDA is expected to be $1 billion on a 2014 pro forma basis, excluding synergies. (EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.)

The transaction is subject to a vote by Olin shareholders and is expected to close by year-end 2015.

In a separate transaction, Dow and Olin 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 prices.

The combined company will utilize an integrated supply of ethylene from Dow's production grid on the U.S. Gulf Coast to be a sustainable, integrated chlor-vinyl producer. It will create scale benefits to Dow, and Olin will contribute significant capital for these rights. Together, both Dow and Olin will benefit from long-term, sustainable physical integration, which is key to the ongoing sustainable growth of both companies.

"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, adding:

"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."

Liveris added, "This milestone is 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 ? with a deal structure designed to maximize total shareholder return. With this transaction we will exceed our target to divest $7 billion to $8.5 billion of non-strategic businesses and assets. This achievement will allow us to have an ongoing focus to continue to enhance shareholder remuneration, reduce debt and continue to invest in future growth in our high priority and high margin businesses."

"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, adding:

"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."

Dow and Olin will have a strong, ongoing operational and commercial relationship including several long-term supply, service and purchase agreements which will support downstream products aligned with Dow's strategic market focus.

Dow will be an important anchor customer of Olin as it works to grow the acquired business. Olin will have a strong capital structure and cash flow to support growth and return of capital to shareholders. It will employ approximately 6,000 employees at 29 operating sites in 9 countries.

Olin will continue to be led by Rupp and a senior management team comprised of both Dow and Olin current employees. Olin's Board of Directors will consist of the existing nine Olin Company directors and three new members to be designated by Dow.

The transaction is subject to approval by Olin shareholders and completion of customary closing conditions, including relevant tax authority rulings and regulatory approvals.

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Dave Rogers

Dave Rogers is a former editorial writer for the Bay City Times and a widely read,
respected journalist/writer in and around Bay City.
(Contact Dave Via Email at carraroe@aol.com)

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