Dow to "Carve-Out" Assets Worth $5B - Analyst Blog

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Dow Chemical ( DOW ) continues to seek opportunities to optimize its portfolio by selectively spinning off or selling its assets. The chemical giant is planning to exit a major portion of its chlorine business that has been in operation for over 100 years. Commodity chemicals assets that are being identified for separation represent up to $5 billion in revenues and includes roughly 40 manufacturing plants across 11 sites.

The move is in sync with the Midland, MI-based company's portfolio management plans and its strategy to focus on high-margin, fast-growing businesses, including agriculture and electronics, that deliver greater returns than cyclical commodity products.

Assets to be carved out include Dow's U.S. Gulf Coast Chlor-Alkali and Chlor-Vinyl facilities, global chlorinated organics production facilities, global Epoxy business and brine and select assets supporting operations in Freeport, TX and Plaquemine, LA, as well as energy operations in Plaquemine.

Separately, Dow also divulged its plans to shutter roughly 800,000 tons of chlorine and caustic equivalent capacity in Freeport. Supply from new plants that are scheduled come on stream with the start-up of Dow's joint venture with Mitsui early next year will replace the capacity being shut down.

Jim Fitterling, Dow's Executive Vice President, will oversee the separation activities. The company has retained financial advisors to explore all separation alternatives (including spin-offs, divestitures and joint ventures) for these assets and plans to carry out transaction activities for these businesses within the next 12-24 months.

Investors reacted positively to the news as Dow's shares rose as much as 3.3% in the trading session yesterday. The stock eventually closed at $39.98, gaining around 2.4% for the day. Dow's shares are up roughly 27% so far this year.

Dow, a Zacks Rank #3 (Hold) stock, continues to face challenges in Europe due to soft economic conditions in the region. In the Performance Materials segment, the Epoxy business is struggling with underperformance amid tough competition and industry overbuilding.

Dow continues to seek opportunities to optimize its portfolio by selectively divesting underperforming assets that are exposed to raw material price fluctuations. The company, in October, signed an agreement to divest the polypropylene licensing catalyst business to W. R. Grace & Co. ( GRA ) for $500 million. W. R. Grace closed the takeover yesterday.

Dow has jettisoned non-core assets worth roughly $10 billion since 2009. It has completed or announced transactions totaling $700 million over the last twelve months.

CEO Andrew N. Liveris, in third-quarter 2013 earnings call, said that the company plans to mop up at least $3 billion to $4 billion from non-core asset sales over the next 18-24 months, above the prior expectations of $1.5 billion. Proceeds from these transactions are expected to be used for boosting shareholder returns, reducing interest expenses and organic growth investments.

Dow is also aggressively pursuing its cost reduction and efficiency programs. As part of the move, the company is slashing headcount, shuttering plants and pruning capital spending on low-priority projects.

Dow's compatriot DuPont ( DD ) is also actively engaged in sell/spin-off of its low-margin businesses as part of its strategy to gradually shift focus to high growth businesses. DuPont is spinning off its struggling performance chemicals unit as well as glass laminating solutions and vinyls business as part of the move. The company, earlier this year, sold its performance coatings business to equity firm The Carlyle Group ( CG ) for $4.9 billion.

CARLYLE GROUP (CG): Free Stock Analysis Report

DU PONT (EI) DE (DD): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

GRACE (WR) NEW (GRA): Free Stock Analysis Report

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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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