The Dow Chemical Company (NYSE:DOW) successfully completed the restructuring of Dow Corning, increasing its 50% stake to 100% in the company’s silicone business. The business was previously owned equally by Dow Chemical and Corning Inc. (NYSE:GLW) . Shares of Dow Chemical increased around 0.7% in the trading session on Wednesday, closing the day about 0.4% higher at $51.58.
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Dow Corning’s world-leading silicone business has been in operation for more than seven decades. It accounted for over $4.5 billion revenues in 2015. In first-quarter 2016, Dow Corning’s sales were $1.32 billion and adjusted income grew 14% year over year to $116 million. The company witnessed an increase in sales as well as profits in the silicones business segment despite headwinds from a sluggish international economy.
Meanwhile, Dow Chemical recorded adjusted earnings of 89 cents per share and revenues of $10.7 billion in the first quarter of 2016. Both the top and bottom lines beat the Zacks Consensus Estimate in the quarter. The company provided a positive EPS surprise in the trailing four quarters as well.
Terms of the Transaction
Dow Chemical looks to complete the integration of Dow Corning into its own operations quickly and impeccably. Management at both companies have already been working together to ensure the incorporation. Dow Corning will now operate as a wholly owned subsidiary of Dow Chemical. Mauro Gregorio, Vice President of Dow Chemical, will serve as CEO of the restructured Dow Corning.
Dow Chemical and Corning Inc will continue with the existing equal ownership structure of Hemlock Semiconductor Group. Dow Corning was a majority shareholder of the polysilicon producer.
Rationale Behind the Restructuring
Dow Chemical looks to augment growth and tap adjacent markets for the existing structure with this increase in ownership. It is confident of enhancing shareholder value and providing high value solutions to customers. Dow Corning looks to increase customer satisfaction with Dow Chemical’s brand name, R&D opportunities and powerful innovation.
Dow Corning, which uses advanced technology, will be a strategic fit to Dow Chemical’s material sciences portfolio. The restructuring is expected to provide Dow Chemical’s bottom line with an additional $1 billion in synergies at full run-rate. The company is confident of generating minimum $400 million for the same.
Additionally, Dow Chemical will see an expansion in its Consumer Solutions and Infrastructure Solutions due to high synergies. Dow Corning will also complement Dow Chemical’s already advanced technology.
Dow Chemical expects to earn 6x EBITDA post synergies from the transaction. The deal brings into focus the 100% benefits that shareholders of Dow Chemical will receive from the 50% acquisition of the silicone business.
This transaction is expected to be accretive to Dow Chemical’s operating EPS, cash flows from operations and free cash flow in the first full year after closure. The joint company expects to develop new technologies and bring forth innovation for its global customers.
Dow Chemical currently has a Zacks Rank #3 (Hold).
Some better-ranked companies in the chemical space include Albemarle Corporation (NYSE:ALB) and BASF SE (OTC:BASFY) , both sporting a Zacks Rank #1 (Strong Buy).
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CORNING INC (GLW): Free Stock Analysis Report
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