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Dow Chemical Selling EAA Copolymers Business to SK Global

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Dow Chemical (DOW - Free Report) recently said that it has reached an agreement to divest its global ethylene acrylic acid (“EAA”) copolymers and ionomers business to SK Global Chemical, a unit of South Korea-based SK Innovation.

The U.S. chemical giant noted that the planned divestiture is part of the ongoing regulatory approval process for the proposed $130 billion mega-merger of Dow and DuPont (DD - Free Report) . Dow is a leading producer of EAA copolymers and markets the product under the Primacor brand as part of its packaging and specialty plastics business.

Under the deal terms, SK Global Chemical will acquire Dow’s production assets located in Freeport, TX, and Tarragona, Spain, as well as related intellectual property and product trademarks. SK Global Chemical has agreed to honor specific customer and supplier contracts and other agreements.

Dow said that the proposed sale of the EAA copolymers business will be conditioned on Dow and DuPont closing their merger as well as other closing conditions including regulatory filings, local employment law and governance obligations.

Dow and DuPont, in late 2015, agreed to combine their businesses in an all-stock deal to create a chemical powerhouse (dubbed DowDuPont), before eventually breaking up into three independent companies through tax-free spin-offs. The breakup is expected to take place 18 months after the completion of the deal.

The merger transaction is currently under investigation by the European Commission (EC). Considering the current regulatory status, the transaction is expected to complete in first-half 2017. Dow and DuPont are working constructively with competition and regulatory authorities globally to secure approval for the planned merger. 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 has modestly outperformed the Zacks categorized Chemicals-Diversified industry over the past three months. The company’s shares have gained around 11% over this period, compared with roughly 10.3% gain recorded by the industry.


 

Dow registered forecast-topping earnings in fourth-quarter 2016, helped by its cost-cutting and productivity actions and continued focus on consumer-driven markets. Its adjusted earnings of 99 cents per share for the quarter trounced the Zacks Consensus Estimate of 88 cents. Revenues rose roughly 14% year over year to $13,020 million on higher volumes, and topped the Zacks Consensus Estimate of $12,479 million.

Dow achieved $60 million in productivity savings during the fourth quarter, bringing the tally to $313 million for 2016, thereby surpassing its cost savings goal for the year.

Dow said that it is witnessing signs of positive economic momentum with the U.S. currently in expansionary mode while Europe continues its gradual recovery notwithstanding growing political uncertainty and geopolitical tensions.

The company envisions demand to remain healthy, especially in the businesses that cater to packaging, infrastructure, consumer care, electronics, automotive and agriculture.

Dow currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked companies in the chemical space include Kronos Worldwide, Inc. (KRO - Free Report) and Methanex Corporation (MEOH - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kronos has an expected long-term growth of 5%.
    
Methanex has an expected long-term growth of 15%.

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