Dow buys Union Carbide

Dow Chemical has agreed to acquire rival Union Carbide in a stock deal worth $11.6 billion (€10.8 billion) that will create the world's second-largest chemical company.

Under terms of the deal, Union Carbide shareholders will receive 0.537 share of Dow for each Union Carbide share, giving them a 25 per cent stake in Dow.

The transaction should boost Dow's earnings per share in the first year after closing, Dow said yesterday. The deal values Union Carbide at $66.96 per share, based on Dow's closing stock price Tuesday of $124.69, Dow said.

Union Carbide closed Tuesday at $48.81. The deal is worth $11.6 billion, including Dow's assumption of $2.3 billion of Union Carbide net debt.

Before completion of the merger, Dow will issue about 3.8 million shares to qualify for pooling accounting treatment.

The merger, expected to be completed early in the first quarter of 2000, hinges on the approval of Union Carbide stock holders and regulatory authorities.

The combined company will have annual revenues of more than $24 billion, operating income of $3 billion, assets of more than $30 billion and a combined market capitalisation of $35 billion. DuPont remains the world's largest chemical company.

The new Dow Chemical will operate in 168 countries and employ about 49,000 people, reflecting a reduction of about 4 per cent of the combined workforce.

Dow said it would seek to minimise the effect of the workforce cuts through reduced hiring, attrition and other measures.

"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 Mr William Stavropoulos, president and chief executive officer of Dow.

"In phase one of our transformation, we improved and focused our portfolio, became the lowest-cost producer, developed a more consistent earnings stream and achieved financial flexibility. This made us a better company.

"In phase two, 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."

Mr William Joyce, chairman and chief executive officer of Connecticut-based Union Carbide, said: "This is the right move at a good time. 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.