Dow Chemical Puts Additional Businesses up for Sale
Dow Chemical is hanging the "for sale" sign on additional links in its value chain, raising the sum of assets it plans to divest over the next few months from $1.5 billion to $3-4 billion. In a conference call to discuss the U.S. group's Q3 2013 performance, CEO Andrew Liveris outlined management's strategy.
While more than two-thirds of Dow's businesses are in "high-margin attractive sectors" such as electronics, packaging and agriculture, Liveris said it has businesses with low-cost solid positions that it is using as cash cows but believes would be better off long-term with a new owner. In particular, he identified portions of the chlorine and derivatives chains, such as epoxy resins, along with chlorinated organics and vinyls.
The decisions have been underpinned by a comprehensive analysis of industries and markets and the group's competitive position, the Dow chief said, "in order to determine the best market and portfolio combination to drive return on capital higher, invest in the right markets and businesses and maximize shareholder value. Put simply, we are moving away from being all things to all markets and going deeper and deeper into profit pools where Dow can extract value with our strong science and technology base and highly competitive cost position."
Liveris said Dow would consider joint ventures or an outright sale, but "due to the complexity associated with this collection of businesses, it might take notable steps and structures to unlock the full value of these assets."
Epoxy resins historically have been a "terrific business with EBITDA margins approaching 20%, and we believe it is capable of being a strong business again," he remarked. However, overbuilding, especially in China, has been a "significant headwind to profitability and it is clear that these markets no longer align with Dow's strategic priorities."
Liveris confirmed that some divestitures already have been lined up. At the same time, he stressed that, as was the case with plastics additives business unsuccessfully put up for sale, the group will "pull things off the market if we don't get the value we believe they're worth."
Other businesses that the group plans to keep, including polyurethanes, will undergo restructuring or see cost-reduction schemes, in Liveris's words, "drilling deeper where value is higher." Over the past year, he said, Dow has shuttered six polyurethane components businesses and reduced structural costs by streamlining the organization. This is expected to "provide an additional $100 million of benefit to the bottom line.
Figures for the Dow group in the third quarter show sales of $13.7 billion, 1% ahead of the 2012 period. Agricultural Sciences, with an 8% rise, along with Coatings and Infrastructure Solutions and Performance Plastics. Volumes declined by 2% or 1% excluding the effects of divestitures. Pricing improvement of 3% was led by a 9% rise in prices of Performance Plastics. Quarterly EBITDA increased by 2% to $1.8 billion, driven by Performance Plastics with a 32% upturn.