Dow Chemical Co (NYSE:DOW) recently announced that a major portion of the chroline business will be split off to Olin Corporation (NYSE:OLN), a maker of the smaller chemicals. The deal will be worth $5 billion, in the form of cash and stock valuation.
The transaction terms
Once the sale is completed and transaction finally sealed, the present shareholders of Dow will have approximately 50.5% shares of Olin. Meanwhile, the shareholders of Olin will have the remainder stake. The value of transaction is $5 billion, in which $2 billion will include cash and this will be received by Dow. $2.2 billion will be in the form of stock of Olin and this will be received by the shareholders of Dow at the closing of deal. $800 million will be assumed by Olin in other liabilities and pension form.
Dow targeting higher margin products
Chlorine has remained the forte of Dow for more than 100 years, i.e., ever since it was established. By distancing itself from chlorine business, Dow Chemical Co (NYSE:DOW) is indicating towards a broader shift in strategic plans of the company. The chemical giant is now keen on focussing towards products that generate higher margins, rather than those which involve just transforming natural gas and oil into the basic chemicals.
The company had unveiled its plan of bidding adieu to chlorine trade in December 2013. Since then, Dow and Olin had been in talks regarding the deal, as revealed by the executives from these two companies.
Reverse Morris Trusts gaining momentum among all
The combination of merger and spin off is called Reverse Morris Trusts. This scenario is gaining recognition because it allows tax-free and clutter-free method for the companies to discard their unnecessary divisions.
Kirkland & Ellis LLP’s Daniel Wolf explains that the beauty of this form of deal is that it is a tax-free method, while also simultaneously allowing companies to carry out what is thought to be as attractive like Merger and acquisition.