Back to top

Image: Bigstock

Dow Chemical Shuttering Silicone Plants, Axing 2,500 Jobs

Read MoreHide Full Article

Dow Chemical (DOW - Free Report) said yesterday that it is taking a number of actions to attain synergies from the recent restructuring of its ownership in Dow Corning Corporation. Dow, earlier this month, took full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc. (GLW - Free Report) .

As part of these actions, Dow is shuttering silicones manufacturing plants in Greensboro, NC, and Yamakita, Japan, and will also close certain administrative, corporate and manufacturing facilities to enhance competitiveness and streamline costs.

These actions will result in the elimination of roughly 2,500 jobs globally, representing around 4% of Dow’s workforce.

Dow expects to take a charge of roughly $410 million to $460 million in second-quarter 2016 for costs associated with these actions that are expected to complete in the next two years. The company expects that these measures will allow it to achieve its cost synergy target run rate of 70% within 12 months of the completion of the Dow Corning transaction.

Dow noted that it expects to achieve combined run rate annual synergies of $500 million from the restructured ownership in Dow Corning, consisting of $400 million in cost synergies (up from $300 million expected earlier) and $100 million in growth synergies. The company also expects to realize $1 billion in annual EBITDA synergies.

The restructuring transaction is also expected to be accretive to Dow’s operating earnings, cash flows from operations and free cash flow in the first full year after its closure. The projected synergies are expected to be captured, in part, through workforce consolidations.

Dow Corning, which makes silicone products, is a strategic fit to Dow’s material sciences portfolio. The restructuring allows Dow to provide complementary technologies in attractive industry segments such as building & construction, consumer care, transportation, packaging and electronics where the company already has leading positions. Dow looks to complete the integration of Dow Corning into its own operations quickly and impeccably and capture the associated synergies.

Dow Chemical’s shares closed roughly 2% lower at $48.50 yesterday.

Dow is moving ahead with its planned mega-merger with DuPont (DD - Free Report) . Dow and DuPont agreed to combine their businesses in Dec 2015 in an all-stock deal to create a chemical powerhouse with a combined market value of around $130 billion, before eventually breaking up into three independent companies through tax-free spin-offs.

The deal is expected to complete in second-half 2016. Special meetings of shareholders of both companies to vote on the planned merger are scheduled on Jul 20. The merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure.

Dow is a Zacks Rank #3 (Hold).
 
A better-ranked company in the chemical space is Albemarle Corp. (ALB - Free Report) , sporting a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Published in