Union Carbide and Dow in $35bn merger

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The Independent Online
TWO OF the world's largest chemicals companies, Dow Chemical and Union Carbide, both based in the United States, yesterday unveiled an agreed merger in response to continuing low prices in the bulk chemical sector. However, the deal is not expected to change the competitive landscape for the UK-based chemicals companies.

The all-paper deal values the enlarged group at $35bn (pounds 21.9bn), making it the world's second largest chemical company after the US-based giant DuPont, which is valued at $81bn. The new company will have annual sales over $24bn. The combined workforce is to be cut by 4 per cent to 49,000. Union Carbide has operations in the UK which make ethylene for antifreeze. Dow has no UK operations.

Jeremy Chantry, chemicals analyst at Credit Lyonnais, said: "This doesn't have huge implications for the UK chemicals industry, but it does show that rationalisation and consolidation will be on-going in the industry worldwide."

The chemicals industry is being squeezed by customers such as car manufacturers who are able to bring their buying power to bear on bulk chemicals producers, forcing down prices. ICI has responded to the downturn by selling off its commodities businesses and switching to higher margin, so-called speciality chemicals, such as ice-cream flavourings. BOC, the British industrial gases company, has succumbed to an agreed bid from Air Liquide of France and Air Products of the US.

Shares in European chemicals groups gained yesterday as dealers speculated about where the next deal would come from. BASF, the German group, rose 5.5 per cent to 44.80 euros, while Akzo Nobel added 3.9 per cent at 40.10 euros.

William Stavropoulos, Dow's chief executive, said yesterday: "We are getting both better and bigger, including increased productivity and higher growth in earnings per share. This merger jump-starts the growth phase of our strategy."

Union Carbide is seen as the weaker of the two players. The deal, in effect a takeover by Dow, values Union Carbide at $66.96 per share, compared with Tuesday's closing price of $48.81. The new group's headquarters are to be located at Dow's base in Midland, Michigan.

The companies expect cost savings in the region of $500m annually. The deal requires the approval of European Union regulators.

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