Dow Takes Ownership of Dow Corning’s Silicones Business

U.S.-based manufacturer Dow Chemical recently announced the successful completion of its transaction to restructure the ownership of Dow Corning.

Dow is now the 100-percent owner of Dow Corning’s silicones business, which had revenues in 2015 of greater than $4.5 billion. Dow Corning is also expected to generate more than $1 billion of annual earnings before interest, tax, depreciation, and amortization (EBITDA) for Dow at full run-rate synergies.

The transaction represents a post-synergy multiple of less than six times EBITDA, highlighting the unique value creation to Dow shareholders from acquiring 50 percent of the silicones business while benefiting from 100 percent of the synergies.

Dow Adds New Chemistry, Technology
“Dow Corning’s world-leading silicone position brings a complementary new chemistry and technology to Dow, with it being a hand-in-glove, strategic fit for our material sciences portfolio and based on the additional $1 billion of EBITDA to Dow’s bottom line at full run-rate synergies, which at $400 million is the minimum we expect to achieve, this transaction is highly accretive for our shareholders,” says Andrew N. Liveris, Dow’s chairman and CEO.

“As an owner of Dow Corning for more than seven decades, our deep understanding of common and adjacent markets we serve will enable us to go narrower and deeper into high growth businesses where innovation is rewarded with value,” Liveris adds. “By linking our two robust innovation engines, we will bring greater value to our shareholders and a wider range of differentiated, high value solutions to our customers.”

A pioneer and current leader in silicone-based technology and innovation, Dow Corning had been a 50:50 joint venture between Dow and Corning Inc. for 73 years. Dow and Corning will maintain their equal proportional equity interests in Hemlock Semiconductor Group, a polysilicon producer in which Dow Corning was the majority shareholder.
Dow says the deal extends its participation in the consumer solutions and infrastructure solutions segments, and it provides immediate integration into Dow’s monomer and polymer value chains.

Furthermore, Dow says the transaction enables the company to provide complementary technology offerings in attractive industry segments where Dow is already a leader, such as building and construction, consumer care, transportation, packaging, and electronics. Dow says it is positioned to capture a minimum of $400 million in annual cost and growth synergies from the restructured ownership.

Business Structure and Governance
Dow Corning will operate as a wholly owned subsidiary of Dow, and it will be headquartered with Dow in Midland, Mich.

Dow’s vice chairman and chief financial officer, Howard Ungerleider, will serve as chairman of Dow Corning in addition to his current responsibilities. Meanwhile, Vice President Mauro Gregorio — who leads the Dow Corning integration team for Dow — will serve as CEO of Dow Corning. Andy Tometich, a 27-year Dow Corning veteran, has been named president of the silicones business.

“We are excited to welcome the Dow Corning team to the Dow family, and to deliver the tremendous growth potential of the combined company,” says Ungerleider. “Dow Corning is a new element for growth for Dow. Bringing together these two industry-leading companies will drive exciting opportunities for our customers worldwide via more comprehensive product offerings, access to new technologies, and expanded R&D [research and development] power to help quickly commercialize innovations.”

Next Steps
Dow says its immediate focus is on seamlessly integrating Dow Corning into its existing operations and quickly capturing full growth and cost synergies. Already, leadership from both companies have worked together to define the organizational design for rapid implementation.

Dow expects the transaction to be accretive to operating earnings per share (EPS), cash flow from operations, and free cash flow in the first full year after transaction close.

“Dow Corning’s silicones technology platform is a natural fit within Dow. Together we share 73 years as joint venture partners,” says Gregorio. “And we also share a promising future of bringing new technologies and innovation to customers worldwide.”