Dow Chemical Continues Portfolio Shift with Twin Asset Sale

Dow Chemical (DOW) has put up a couple of businesses for sale as part of its ongoing efforts to switch focus to high-growth businesses. The U.S. chemical giant has agreed to dispose its Sodium Borohydride business and its polyolefin films plant in Findlay, OH, for aggregate proceeds of roughly $225 million.

Dow is selling the Sodium Borohydride business to Indiana-based specialty chemicals maker – Vertellus Specialty Materials LLC. The business offers sodium borohydride for use in the synthesis of fine chemicals such as pharmaceutical ingredients and agrochemicals.

The divestment of the Sodium Borohydride business includes an Elma, WA-based manufacturing plant, related business, inventory, process technology and specific intellectual property. Dow, in Oct 2014, revealed its plans to sell the business as part of its efforts cut exposure to non-core businesses.

Moreover, Dow has agreed to sell the polyolefin films plant to Valfilm North America, Inc., a fully-owned unit of Brazil-based VALGROUP Packaging Solutions. The sale includes assets and technology that make a vast range of polyolefin films. Dow, in Sep 2014, decided to shutter the plant by end of next year. Valfilm plans to restart the facility in Feb 2015.

The twin transactions, which are subject to regulatory clearances, are expected to complete in first-quarter 2015. The divestments are part of Dow’s ongoing efforts to deliver $7 billion to $8.5 billion in gross proceeds from assets sale by mid-2016.

Dow remains is on track to realize its earlier announced $4.5–$6 billion in proceeds from non-core asset sale by end-2015. It has already completed $2.5 billion of divestments since 2013.

Dow remains actively focused on seeking opportunities to optimize its portfolio by selectively spinning off or selling its underperforming assets and gradually shift focus to high-growth markets. The company is carving out a major portion of its chlorine business that has been in operation for over 100 years. Commodity chemicals assets that are being identified for separation represent up to $5 billion in revenues.

Dow came under pressure in early 2014 after activist investor Dan Loeb's Third Point hedge fund bought a major stake in the company. Loeb urged Dow to spin off its sluggish petrochemicals business and focus instead on high-margin, fast growing businesses with a view that the move will create more value for the company’s shareholders.

Last month, Dow and Third Point reached a crucial agreement, under which, the former agreed to add four new, independent directors to its board (including two suggested by Third Point), thus avoiding the possibility of a proxy battle between them. All four new directors will be included in Dow’s nominations for election at the 2015 annual meeting.

Dow is a Zacks Rank #3 (Hold).

Other stocks in the chemical space worth considering include Valhi, Inc. (VHI), Innospec Inc. (IOSP) and Celanese Corporation (CE). While both Valhi and Innospec carry a Zacks Rank #1 (Strong Buy), Celanese retains a Zacks Rank #2 (Buy).