Diversified chemical firm Dow Chemical Co. (DOW) late Wednesday announced that its wholly owned subsidiary Rohm and Haas has agreed to sell its salt business Morton International, Inc. to Germany's K+S Aktiengesellschaft for US$1.675 billion in cash. Dow said the Morton Salt divestiture is expected to close in mid-2009 and will be clearly earnings per share accretive from fiscal 2010 onwards.
K+S is one of the world's leading suppliers of specialty and standard fertilizers, plant care as well as salt products. The K+S Group employs about 12,000 people and has achieved revenues of about 5.0 billion euros in 2008.
In a statement, chairman of the board of executive directors of K+S, Norbert Steiner said, Morton Salt is an excellent opportunity to grow our global salt business. It marks another milestone in our strategy towards balanced growth, enhances our profitability and as a result strengthens K+S Group overall, in Europe and Overseas.
In fiscal 2008, Morton Salt achieved US$1.2 billion in revenues, operating 6 rock salt mines, 7 solar evaporation facilities, 10 vacuum pan operations as well as 62 salt stockpiles and 61 distribution centers. Its annual salt production capacity amounts to 13.1 million tones.
With the acquisition of Morton, K+S would acquire widespread, close-to-customer production sites in the U.S. and Canada and a nationwide distribution network. Additionally, K+S would gain access to new and less volatile de-icing regions and extend and diversify its geographic presence and enhance its positions in the North American consumer and industrial salt markets. The acquisition of Morton Salt will make K+S the North American and global leader in salt.
The Morton Salt divestiture is not subject to a financing condition. However, the financing for the deal is fully underwritten by Dresdner Kleinwort, Société Générale and Unicredit.
The deal is subject to the receipt of the required antitrust approvals as well as customary closing conditions, including other regulatory approvals. However, the companies do not foresee any issues with respect to potential antitrust and other regulatory considerations as they have carefully analyzed the business combination in that respect.
The divesture puts Midland, Michigan-based Dow ahead of schedule, with the sale proceeds accelerating its de-leveraging plan post the closure of the Rohm and Haas acquisition. Dow revealed plans to divest Morton Salt on March 9, contingent upon the closing of its proposed acquisition of Rohm and Haas. The sale is part of Dow's plan to sell off non-core Rohm & Haas assets to pay down the hefty debt it had to take on to complete the acquisition.
Under Dow's de-leveraging plan, it has already re-negotiated and extended the terms of the Rohm and Haas bridge loan as well as slashed dividend by 64%, leading to annualized savings of about $1.0 billion.
Dow has also negotiated harder on the Rohm and Haas acquisition for substantially improved financial terms. According to the settlement agreement, the Haas family trusts and Paulson Co., two of Rohm and Haas' largest shareholders, agreed to purchase $2.5 billion in face value of perpetual preferred equity issued by Dow, and make an additional investment of $500 million at Dow's option. On completion of the de-leveraging actions, Dow's originally anticipated bridge loan debt would be reduced to about $7.5 billion from $13.0 billion.
Earlier in the day, Dow Chemical completed the acquisition of Rohm and Haas, creating a $14.0 billion diversified business portfolio, Dow's Advanced Materials division. The company is expecting the new combined business to achieve $3.0 billion in additional value growth opportunities, as well as annual cost synergies of $1.3 billion.
DOW closed Wednesday's regular trading at $8.81, gaining $0.38 or 4.51% on a volume of 20.18 million shares, lower than the three-month average volume of 24.86 million shares. In the past 52-week period, the stock has been trading in a broad range of $5.89 to $43.43.
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