The Dow Chemical Company (Dow) announced on 1 June the successful completion of a transaction to restructure the ownership of Dow Corning. Dow is now 100 percent owner of Dow Corning’s silicones business, which had 2015 revenues of greater than US$4.5 billion and is expected to generate more than US$1 billion of annual EBITDA for Dow at full run-rate synergies.
The transaction represents a post-synergy multiple of less than six times EBITDA, highlighting the unique value creation to Dow shareholders from acquiring 50 percent of the silicones business while benefiting from 100 percent of the synergies.
Multiple benefits for shareholders and customers
‘Dow Corning’s world-leading silicone position brings a complementary new chemistry and technology to Dow, with it being a hand-in-glove, strategic fit for our material sciences portfolio. Based on the additional one billion of EBITDA to Dow’s bottom line at full run rate synergies, which, at US$400 million is the minimum we expect to achieve, this transaction is highly accretive for our shareholders. As an owner of Dow Corning for more than seven decades, our deep understanding of common and adjacent markets we serve will enable us to go narrower and deeper into high growth businesses where innovation is rewarded with value,’ says Andrew Liveris, Dow’s chairman and CEO. ‘By linking our two robust innovation engines, we will bring greater value to our shareholders and a wider range of differentiated, high value solutions to our customers.’
More about the business
A pioneer, and current day leader in silicones, silicon-based technology and innovation, Dow Corning was previously a 73-year 50:50 joint venture between Dow and Corning Incorporated. Dow and Corning will maintain their equal proportional equity interests in Hemlock Semiconductor Group, a polysilicon producer in which Dow Corning was the majority shareholder.
The highly synergistic transaction extends Dow’s participation in its consumer solutions and infrastructure solutions segments, providing immediate integration into Dow’s monomer and polymer value chains. It also enables Dow to provide complementary technology offerings in attractive industry segments where Dow is already a leader today, such as consumer care, packaging, building and construction, transportation, and electronics. Dow is positioned to capture a minimum of US$400 million in annual cost and growth synergies from the restructured ownership.
Structure and governance
Dow Corning will operate as a wholly owned subsidiary of Dow, and will be headquartered with Dow in Midland, Michigan.
As previously announced, Dow vice chairman and CEO, Howard Ungerleider will serve as chairman of Dow Corning in addition to his current responsibilities. Dow vice president Mauro Gregorio, who leads the Dow Corning integration team for Dow, will serve as CEO of Dow Corning. Andy Tometich, a 27-year Dow Corning veteran, has been named business president of the silicones business.
‘We are excited to welcome the Dow Corning team to the Dow family, and to deliver the tremendous growth potential of the combined company,’ says Ungerleider. ‘Dow Corning is a new element for growth for Dow. Bringing together these two industry-leading companies will drive exciting opportunities for our customers worldwide via more comprehensive product offerings, access to new technologies, and expanded R&D power to help quickly commercialize innovations.’
Dow’s immediate focus is on seamlessly integrating Dow Corning into its existing operations and quickly capturing full growth and cost synergies. Already, leadership from both companies have worked together to define the organisational design for rapid post-close implementation. Dow expects the transaction to be accretive to operating earnings per share, cash flow from operations and free cash flow in the first full year after transaction close.
‘Dow Corning’s silicones technology platform is a natural fit within Dow. Together we share 73 years as joint venture partners,’ comments Gregorio. ‘We also share a promising future of bringing new technologies and innovation to customers worldwide.’