Dow Chemicals (DOW), the 115 year old American multinational chemical corporation giant, is planning to spin-off of its $4 billion chorine derivatives business. As a result of this divestiture, the company will essentially be getting out of a business it has been involved in for over one hundred years. The move is a part of an ongoing effort to prove to investors that the company has weaned itself away from concentrating on low-margin businesses towards focusing on high-margin, less cyclical businesses.
As Investors tend to look kindly upon companies that choose to sell or spin-off their underperforming assets, it comes as no surprise that Dow stock registered a stock price jump of 2.25% after the company announced divesting resources from its chlorine chain, which generates 9% of the company’s total revenues. The move is a sure signal that the company is increasingly focused on benefiting from patented products, which provide them with an opportunity to earn higher margins than their commodity chemicals businesses. DOW has already shed non-cores businesses which were generating $10 billion in revenue since 2009.
The spin-off is likely to render positive results for Dow Chemicals. Dow generated revenues of $56.8 billion in FY12, down 5.3% year-over-year (YoY), and its move to carve out almost 10% of its businesses will allow the company to focus on electronics, packaging and agriculture instead of providing a wide range of products to a plethora of industries. The divesture will lead to a right-sizing of its chlorine value chain, one which would match its downstream needs in high growth markets. Read More : DuPont’s Footsteps
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