December 2013

Dow Chemical considers name change, sale

The head of Dow Chemical Co. ( DOW ) said the company might consider changing its name in the wake of detailing plans on Monday to shed the volatile, low-margin commodity chemicals businesses with annual sales of $5 billion that date back to its founding more than 100 years ago.

Dow executives have discussed dropping “Chemical” from its name as part of its migration away from low-margin commodity chemicals such as chlorine used in cleaning products, to focus on higher-value businesses including agricultural seeds and packaging materials.

The move mirrors efforts elsewhere in the industry, notably by rival DuPont & Co., to shed commodity chemicals that are prone to intense competition and price swings, and focus instead on patent-protected businesses that are more resilient in economic downturns.

Andrew Liveris, Dow’s chairman and chief executive, said in an interview the restructured business would be linked by “chemistry rather than chemicals,” noting it had focused recent marketing efforts, such as sponsorship of last year’s summer Olympics in London, on the standalone Dow brand.

“Would I be brave enough?” Mr. Liveris said in reference to changing Dow’s name. He confirmed internal branding discussions have taken place at the world’s second-largest chemical company by sales after Germany’s BASF SE, but added that the company was not yet planning such a move.

The company outlined plans on Monday to exit from 40 facilities at 11 sites producing chlorine, epoxy and other commodity chemicals, which face intense competition from producers in Asia. Dow plans to sell, spin off or create joint ventures for those operations, which employ around 2,000 staff world-wide, 70% of them along the U.S. Gulf Coast. They generate $4 billion in external sales and another $1 billion in internal transfer.

The company has already shed $10 billion worth of business lines since 2009, much of which involved shrinking the commodity plastics business. In October, Dow announced a target to raise between $3 billion and $4 billion from additional sales over the next two years.

“We have had a lot of [early] interest,” said Mr. Liveris of the latest sales plan. “We judged this to be a good time…to open up the doors.”

Analysts said interest is expected to come from companies looking to leverage access to cheap U.S. natural gas produced from shale formations by acquiring some or all of the Dow facilities.

“I think they have to do it in pieces,” said H. Cooley May, analyst at Macquarie Capital (USA) in Houston, who cited U.K.-based Ineos Group Ltd., Brazil’s Braskem and India’sReliance Group as potential suitors or partners.

If the disposals take place over the next 12 to 24 months as planned, Dow, which had sales of $56.8 billion in 2012, will have shed nearly a quarter of its business by revenue in five years.

Mr. May said investors may still be looking for further exits from commodity products.

“I would not be surprised if we’ve still to see them cutting [more] plastics and performance materials,” he said.

Mr. Liveris said Dow was “getting very close” to determining the future size and shape of its portfolio, with the latest disposal plans.

Dow is the largest U.S. chlorine producer by volume, and the latest restructuring would see it largely exit a business that underpinned its founding in 1897 when Herbert Henry Dow, who commercialized a method to extract brine-based chlorine to make bleach.

Dow started to shrink its commodity business in 2005, with a goal of reducing exposure from more than 50% of sales to just 20%. But the financial crisis of 2008 almost derailed that plan when Dow’s $9 billion purchase of rival Rohm & Haas gave it high-margin specialty chemicals but saddled the company with massive debt.

“People were writing us off, yet we pulled it off,” Mr. Liveris said.

Dow has sworn off more acquisitions since the Rohm & Haas deal, focusing on reducing debt and boosting shareholder returns, and has no plans to alter that strategy with the expected proceeds from exiting commodity chemicals.

Most of the new set of planned disposals are focused at the U.S. Gulf Coast, but Mr. Liveris said Dow’s domestic footprint would still expand as new facilities designed to exploit cheap shale gas come online to produce higher value products.