Dow To Separate Chlorine Value Chain To Merge It With Olin In $5 Bln Deal

(RTTNews) - Dow Chemical Co. (DOW) and Olin Corp. (OLN) Friday said their boards of directors unanimously approved a definitive agreement for Dow to separate a significant portion of its chlorine value chain and merge that new entity with Olin in a transaction valued at $5 billion.

The deal includes $2 billion of cash and cash equivalents to be paid to Dow, an estimated $2.2 billion in Olin common stock using the Olin stock value as of close on March 25, and about $800 million of assumption of pension and other liabilities.

Dow noted that the deal has a tax efficient consideration of $5 billion, and a taxable equivalent value of $8 billion to the company and its shareholders.

Additionally, 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.

Dow is 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 in a Reverse Morris Trust transaction.

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

The deal is expected to create an industry leader with revenues close to $7 billion, and Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA is expected to be $1 billion on a 2014 pro forma basis, excluding synergies. The transaction is expected to close by the end of 2015.

Following the completion of the transaction, Olin will be an industry leader in chlor-alkali and derivatives, as it will benefit 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, logistics savings and benefits, and the potential for expansion of existing products produced by Olin and Dow into additional geographies and additional customers.

In a separate, arms-length transaction, Dow and Olin agreed to a 20-year long-term capacity rights agreement for the supply of ethylene by Dow to Olin. Dow will receive up-front payments from this and, in return, Olin will receive ethylene at co-investor, integrated producer economics.

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 are expected to benefit from long-term, sustainable physical integration.

Dow will be an important anchor customer of Olin. Olin will have a strong capital structure and cash flow to support growth and return of capital to shareholders. It will have about 6,000 employees at 29 operating sites in 9 countries.

Olin will continue to be led by its chairman and CEO Joseph 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.

"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," Rupp said.

DOW, which closed at $46.86 on Thursday, gained close to 3 percent in pre-market activity.

OLN, which had settled at $27.19, surged over 21 percent in trading before the market open.