With full control of the joint venture Dow said it will extend its participation in Consumer Solutions and Infrastructure Solutions segments by increasing its product offerings in several attractive end use applications—such as building and construction, consumer care and automotive.
Aida Jebens—principal analyst, silicones, for IHS Inc.—said in an email that by gaining full ownership of the joint venture, Dow Corning also can take full advantage of Dow's strong marketing network to expand its silicones business, utilizing the parent company to bring its silicone technologies to markets where it currently does not sell the product.
Dow said it is positioned to capture $400 million in run rate annual cost and growth synergies from the restructured ownership of Dow Corning. The transaction is expected to yield more than $1 billion in additional annual EBITDA at full run-rate synergies.
The firm said that synergies will be delivered anywhere between 24 to 36 months after the deal's closure.
“For Dow, owning 100 percent of Dow Corning's silicones business is the next step in our portfolio evolution as we drive higher, more stable, earnings, deliver strong cash flows and release value for our shareholders,” Liveris said.
“This transaction is the equivalent to multiple bolt-on acquisitions, but at a lower risk given our longstanding ownership of the joint venture. We are very familiar with Dow Corning's silicones technology platform, their end use applications and their customers. This transaction will open up new markets and geographies, create scale and relevance for our customers, and increase the breadth of product offerings across the Dow and Dow Corning businesses.”
For 2014, Dow Corning posted net income of $513 million on sales of $6.22 billion, according to information posted on its website. Through three quarters of 2015, sales dropped 8 percent to $4.18 billion, with the decline attributed mainly to a strong U.S. dollar. Net income fell 22 percent to $370 million. It employs 11,000 worldwide at 62 manufacturing sites and offices.
The firm said in its third quarter report that its silicones unit saw increased business in its “most differentiated and innovative product lines—which are also the most profitable—allowing us to offset some of the negative currency impact.”
Jebens said the transaction shouldn't impact the existing silicone industry much because Dow Corning already is well established in the silicones business.
“I think it will be business as usual for the silicones market,” she said in the email.
IHS projects the silicones market to grow at about 5 percent per year on a global basis with regional growth in the developed regions—such as the U.S., Western Europe and Japan—growing along gross domestic product rates, Jebens said. Demand in the developing countries should be in the 6-10 percent range with China at the high end.
Dow recently reached an agreement to merge with DuPont Co. and break the combined business up into three separate businesses with a focus on agriculture, commodities chemicals and specialty chemicals. DowDuPont is valued at about $130 billion.
“I think it is very positive,” Jebens said of Dow's outlook going forward from the two transactions.
“Dow Corning's silicones products will significantly strengthen the DowDuPont product portfolios in several major industries—like construction, automotive, electronics and personal care products.”