The boards of directors of The Dow Chemical Company and Olin Corporation have approved a definitive agreement under which Dow will separate a significant portion of its chlorine value chain and merge that new entity with Olin in a transaction that will create a business with revenues approaching $7 billion. The transaction has a tax efficient consideration of $5 billion, and a taxable equivalent value of $8 billion to Dow and Dow shareholders.

The terms of the agreement call for Dow to separate its US 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 approximately 50.5% of the shares of Olin, with existing Olin shareholders owning approximately 49.5%

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 using the Olin stock value as of close on March 25, 2015; 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 move further positions Olin in chlor-alkali and derivatives. Expected cost synergies of the transaction include network optimization that will facilitate output expansion, logistics savings and benefits, and 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. The transaction is subject to a vote by Olin shareholders and is expected to close by year-end 2015.

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, in which Dow will receive up-front payments and, in return, Olin will receive ethylene at co-investor, integrated producer economics. The agreement is additive to the financials outlined above for the chlorine value chain transaction. The combined company will utilize an integrated supply of ethylene from Dow's production grid on the US Gulf Coast to be a sustainable, integrated chlor-vinyl producer. It will create scale benefits to Dow, and Olin will contribute capital for these rights. Together, both Dow and Olin seek to benefit from long-term, sustainable physical integration.

Post the transaction, Dow and Olin will have an ongoing operational and commercial relationship, including several long-term supply, service and purchase agreements that 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 employ approximately 6,000 employees at 29 operating sites in nine countries. Olin will continue to be led by Joseph D. Rupp, Olin's chairman and chief executive officer 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.

Source: The Dow Chemical Company