Dow Chemical To Buy Union Carbide
The merged company, which will operate under the Dow Chemical name, will have $24 billion in annual revenues, putting it ahead of the current No. 2, Germany's BASF, according to the most recent rankings by Chemical Week, a magazine covering the industry.
About 2,000 jobs will be cut as a result of the merger, leaving about 49,000 employees. The two companies said today in announcing the deal that they expect the combination to save $500 million a year.
"This transaction is a giant step in our strategy to transform Dow into the world's most productive, best 'value-growth' company in the chemical industry,'' said William S. Stavropoulos, Dow Chemical's president and chief executive officer.
Union Carbide spokesman Sean Clancy said no decisions have been reached yet on where the job cuts will be made. The merged company's corporate headquarters will remain in Midland, Mich., where Dow Chemical is based.
Union Carbide shareholders will own about 25 percent of Dow Chemical after the deal is complete, and Union Carbide Chairman and Chief Executive Officer William Joyce will become vice chairman of the Dow Chemical board of directors.
Under the deal, Union Carbide shareholders will receive 0.537 share of Dow Chemical for each of their Union Carbide shares - or $66.96 based on Tuesday's closing price of Dow Chemical's stock. Dow Chemical will also assume $2.3 billion in debt.
News of the merger sent Union Carbide's stock soaring $11.68, or by 24 percent, to $60.50 a share this morning on the New York Stock Exchange, where Dow Chemical's stock slid $4.93, or by 4 percent, to 119.75.
The merger depends on the approval of Union Carbide shareholders and regulatory authorities. (Where are the regulatory authorities?) The companies expect the deal to be completed by the first quarter of 2000.
"This is the right move at a good time,'' Joyce said in a statement. "In a consolidating chemical industry where fewer, more powerful companies will exist, the combination of Dow and Union Carbide now sets the gold standard for the industry.''
Dow Chemical is second only to DuPont in the United States, earning $1.3 billion on sales of $18.4 billion in 1998. It produces a variety of chemicals, plastics and herbicides, including Styrofoam insulation.
The company is a half-owner of Dow Corning Corp., the former silicone breast implant manufacturer which has offered to pay $3.2 billion to settle claims from 170,000 women.
Union Carbide, based in Danbury, Conn., was born in a merger of several companies in 1917 as the Union Carbide & Carbon Corp. Over the years, it developed Prestone antifreeze, Glad plastic bags and Eveready batteries, brands it later sold to other manufacturers.
From the 1940s to 1984, it ran the U.S. government's nuclear laboratories in Tennessee and Kentucky. It ranks seventh in the U.S. in chemical sales and 21st in the world, according to Chemical Week.
Union Carbide built a pesticide plant in Bhopal, India, in 1975. In 1984 a tank at the plant leaked five tons of poisonous methyl isocyanate gas, killing more than 3,000 people and injuring 50,000 in the world's worst recorded industrial accident. Union Carbide paid a $470 million settlement in India's Supreme Court in 1989.
Union Carbide had profits of $403 million in 1998 on sales of $5.7 billion. The deal will be completed under the "pooling-of-interests'' accounting method, popular in U.S. mergers, allowing the companies to avoid a large tax bill that would have been generated if the deal was an outright purchase of one company by the other.