Dow Chemical Outlines Investment Plans, Gives Merger Update

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Dow ChemicalDOW has divulged its next phase of comprehensive investments plans for the next five years to enhance its long-term competitive advantage and deliver earnings growth and shareholder value.

The planned investments are expected to spur economic activity, mostly in the U.S., and create significant number of jobs. The projects will expand Dow's U.S. growth investments to more than $12 billion over a 10-year period and are expected to create around 5,500 jobs at peak activity and 300 permanent jobs.

Dow has already created over 10,000 direct and indirect jobs in the U.S. over the last four years, mostly as a result of its more than $6 billion of investments currently underway on the U.S. Gulf Coast.

The company's multi-phased investment plans include expansion of the capacity of its new TX-9 ethylene cracker through the addition of two furnaces that would bring the facility's overall ethylene capacity to 2 million metric tons. This would make the cracker the biggest ethylene facility globally.

Dow also plans to build a world-scale 600,000 metric ton polyethylene unit in the U.S. Gulf Coast based on its proprietary Solution Process technology to address demand in specialty packaging, health and hygiene and industrial and consumer packaging applications.

Dow will also invest to strengthen its Polyurethanes business aimed at boosting downstream specialty polyols and systems growth and infrastructure enhancements. The company will also undertake a number of debottleneck projects across its global asset network that will deliver around 350,000 metric tons of additional polyethylene.

Moreover, Dow plans to build a world-scale 450,000 metric ton polyolefins facility in Europe that will enhance the value of the company's ethylene integration in the region. The company also plans to invest an additional $400 million to support the transformation of its Midland, MI manufacturing operations.

In addition, the company plans to invest in a new, $100 million innovation center in Midland that will house scientists and engineers who will focus on R&D activities for advancing solutions for home and personal care products.

The planned investments are expected to come onstream in a phased manner, starting in 2020, at an estimated capital expenditures of roughly $4 billion spread over the next five years.

Dow and DuPont DD are working towards closing their planned mega-merger. The European Commission ("EC") conditionally approved the merger in Mar 2017 after both companies committed to sell major portions of different businesses. Moreover, the companies recently secured conditional regulatory approval in China for the planned merger.

In sync with the commitments made to secure the approval of the EC for the merger, Dow and DuPont have agreed to sale certain parts of DuPont's crop protection business and R&D pipeline and organization as well as Dow's global ethylene acrylic acid copolymers and ionomers business. Moreover, the companies have made commitments associated with the supply and distribution of certain herbicide and insecticide ingredients and formulations for rice crops in China for five years after the completion of the planned merger. The companies continue to expect the closing of the deal to take place between Aug 1, 2017 and Sept 1, 2017.

Dow also provided an update on the transition of its CEO Andrew Liveris yesterday. The company noted that Liveris will serve as the executive chairman of the combined entity from closing of the merger through Apr 1, 2018, when he will become the chairman of the integrated company. Liveris will then retire from the company and the board on Jul 1, 2018.

Dow and DuPont also declared the members of the board of directors for the proposed merger yesterday. The board of the combined entity will consist of 16 directors - eight incumbent Dow directors and eight current DuPont directors. The appointments will be effective on completion of the merger.

Dow has outperformed the Zacks categorized Chemicals-Diversified industry over the last one year, supported by sustained healthy growth fundamentals in its core end-use markets. The company's shares have gained around 22.4% over this period, compared with roughly 20% gain recorded by the industry.

Dow topped earnings expectations in first-quarter 2017, helped by its cost-cutting and productivity actions and continued focus on consumer-driven markets. The company is seeing strong demand across major consumer-focused markets such as packaging, infrastructure, transportation and consumer care, which is contributing to volume and earnings growth.

The company is witnessing signs of positive economic momentum globally amid sustained geopolitical risks and volatility. Dow believes that the strength of its portfolio coupled with its focus on consumer-led markets will continue to serve it well in this backdrop.

Dow is a Zacks Rank #3 (Hold) stock.

Dow Chemical Company (The) Price and EPS Surprise

Dow Chemical Company (The) Price and EPS Surprise | Dow Chemical Company (The) Quote

Stocks to Consider

Better-placed companies in the chemical space include Huntsman Corporation HUN and The Chemours Company CC , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Huntsman has expected long-term growth of 7.8%.

Chemours has expected long-term growth of 15.5%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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