Dow Chemical to Split Off Chlorine Business in $5 Billion Deal -- Update

By Chelsey Dulaney 

Dow Chemical Co. said Friday that it will split off a significant portion of its chlorine business and merge it with Olin Corp. in a deal valued at $5 billion.

Dow initially unveiled plans to carve out the business in December 2013.

The new entity, which will include Dow's U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and epoxy businesses, is expected to have revenue of nearly $7 billion and will be an industry leader, the companies said.

Shares of Dow surged 6.4% in premarket trading, while Olin shares gained 4.8%.

After the merger is completed, Dow shareholders will hold about 50.5% of Olin, while Olin shareholders will own about 49.5%.

Dow will receive $2 billion in cash and about $2.2 billion in Olin stock. The remaining $800 million reflects the assumption of pension and other liabilities.

Olin, for its part, expects to save at least $200 million a year as a result of its increased scale.

The move comes after Dow has faced criticism of its structure from activist hedge fund Third Point LLC, which has pressured Dow to break apart its petrochemicals business from its specialty chemicals segment. Dow agreed in November to appease the firm by adding two directors to its board who were proposed by Third Point, along with two other independent directors who were favored by Dow.

In a statement Friday, Dow Chief Executive Andrew Liveris said the deal allows the company to exceed its target of divesting up to $8.5 billion in non-strategic businesses.

The petrochemical maker has benefited from robust growth for its plastics and other industrial products recently, offset in part by price declines in Western Europe largely related to the impact of the strong dollar. Languishing oil prices haven't yet cut into Dow's earnings, but the company has said it isn't immune to fuel-price swings or unfavorable exchange rates.

For its part, Olin saw a decline in chlorine and caustic soda shipments, along with lower prices, for part of last year. But Chief Executive Joseph Rupp said in February that the business is expected to improve this year and called a trough to the cycle.

Write to Chelsey Dulaney at [e-mail]

Access Investor Kit for The Dow Chemical Co.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US2605431038

Access Investor Kit for Olin Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US6806652052

Subscribe to WSJ: http://online.wsj.com?mod=djnwires