Dow Chemical DOW has put up another business for sale as part of its aggressive portfolio management actions. The Michigan-based chemical giant has agreed to dispose its post-harvest specialty chemical business – AgroFresh – in a deal worth $860 million.
Under the deal, the AgroFresh unit will be purchased by Boulevard Acquisition Corp. BLVD, a public investment vehicle formed by investment firm Avenue Capital Group. Boulevard will buy AgroFresh in exchange for 18.4 million of its own shares and $626 million in cash.
Dow’s shares fell around 1.2% to close at $51 last Thursday while Boulevard’s shares gained around 14.8% to close the day at $11.59.
AgroFresh is a leading global provider of technologies for the horticultural and agronomic markets, offering a range of products and services aimed at boosting the freshness, quality and value of fresh produce. The entity offers the SmartFresh Quality System, its flagship product, geared to preserve firmness, texture and appearance of fruits during storage and transport. This freshness protection technology is available across 45 nations globally.
The deal, which has been cleared by the boards of both Dow and Boulevard, is expected to consummate in third-quarter 2015. The transaction still remains to be cleared by Boulevard’s shareholders and is also subject to regulatory filings and local employment law and governance obligations in Europe. An affiliate of Avenue Capital has offered incremental capital commitments for the transaction.
Following the deal closure, AgroFresh will become a subsidiary of Boulevard. Dow will initially retain around 40% stake in AgroFresh with the shareholders of Boulevard holding roughly 60%. Dow’s vice president and corporate director, Thomas Macphee, has been named the CEO of AgroFresh, pending the completion of the deal. The retention of a minority interest in AgroFresh will enable Dow to take part in the growth prospects of the entity.
The divestment of AgroFresh is in sync with Dow’s focus on optimizing its portfolio by selectively spinning off or selling its underperforming assets and gradually shift to high-growth markets. Dow announced its plans to sell AgroFresh in Oct 2014.
Dow is also carving out a major portion of its chlorine business that has been in operation for over 100 years. Dow, in Mar 2015, announced that it will divest a considerable portion of its chlorine value chain and merge that with Olin Corp. OLN in a deal valued at around $5 billion. With this transaction, Dow now expects to raise more than $11 billion from asset sales by mid-2016, well ahead of its earlier stated target of $7.5-$8 billion.
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.
However, Dow and Third Point reached a crucial agreement in Nov 2014, 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.
Dow currently holds a Zacks Rank #3 (Hold).
A better-ranked stock in the chemical space is LyondellBasell Industries N.V. LYB, sporting a Zacks Rank #1 (Strong Buy).
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