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Dow Eyes $1.5B from Divestitures

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The Dow Chemical Company (DOW) continues to seek opportunities to optimize its portfolio by selectively divesting its assets. The U.S. chemical kingpin said yesterday that it aims to mop up nearly $1.5 billion from non-core assets sale over the next 18 months.

The move is in sync with the Midland, Mich.-based company’s portfolio management plans, which it revealed at its Investor Forum in Dec 2012, and its strategy to focus on high-margin, fast-growing businesses. Dow noted that it has identified two non-core businesses – Polypropylene Licensing and Catalysts and Plastics Additives – and will seek suitors for these units.

Dow’s polypropylene licensing and catalysts unit, a part of its Performance Plastics division, offers technology used to make polypropylene, a plastic polymer used in wide spectrum of applications. The plastics additives business, which belongs to the Performance Materials segment, supplies additives used in an array of applications including construction materials, packaging containers, appliances and electronics and automotive parts. Dow saw lower volumes across these segments in fourth-quarter 2012.

Dow has been activity engaged in portfolio management actions over the last few years. The company has jettisoned non-core assets worth roughly $8 billion since 2009. Dow, in Jan 2013, sold the stabilizers component of its plastics additives unit and agreed to divest its 50% stake in its Japanese joint venture, Nippon Unicar Company Limited. The company also sold its polypropylene business to Brazil-based Braskem SA in 2011.   

Dow is also aggressively pursuing its cost reduction and efficiency programs. Clobbered by a challenging global economic environment, Dow announced a major restructuring program in Oct 2012. As part of the move, the company is slashing roughly 2,400 jobs, shuttering around 20 of its plants and pruning capital spending on low-priority projects. Dow targets aggregate cost savings of $2.5 billion with $1 billion expected this year.

Dow continues to witness slowing economic activity, largely due to the beleaguered economic conditions in Europe. Softness across end markets, especially in China, and weak pricing are denting its results. Weakness in the electronics and construction end-markets may continue into the first quarter of 2013. Moreover, Dow contends with volatility in propylene costs. It sees propylene costs to go up in the first quarter.

Nevertheless, Dow is benefiting from strong fundamentals in agriculture and food markets and is leveraging its North American feedstock advantage. A bevy of innovative products in its pipeline adds to its strength.

Dow currently retains a short-term Zacks Rank #3 (Hold)

Other companies in the chemical industry having favorable Zacks Rank are Akzo Nobel NV (AKZOY), Axiall Corporation (AXLL) and Air Products (APD). All of them hold a Zacks Rank #2 (Buy).

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