Dow Chemical to Buy Union Carbide (Breakfast With the Fool) August 4, 1999


Wednesday, August 4, 1999

"Most of us would rather risk catastrophe than read the directions."
-- Mignon McLaughlin

Dow Chemical to Buy Union Carbide

Global chemical giant Dow Chemical Co. (NYSE: DOW) announced it will acquire Union Carbide Corp. (NYSE: UK) in an all-stock deal valued at $11.6 billion (including $2.3 billion in assumed debt), or about $66.96 a share. That represents a 37% premium over Union Carbide's close yesterday of $48 13/16 ($48.8125). Union Carbide shareholders will receive 0.537 of a Dow share for each Union Carbide share. The transaction is expected to be accretive to Dow's earnings per share in the first year after closing. Savings are expected to begin upon closing and will be fully realized within two years, with about half in the first year.

The merger combines two chemical powerhouses, with combined annual revenues of more than $24 billion and operating income of $3 billion. It creates the world's second-largest chemical company overall, employing some 49,000 people. Dow President and CEO William Stavropoulos said the merger jump starts the growth phase of the company's strategy to make Dow "the world's most productive, best 'value-growth' company in the chemical industry." The combined company aims to reach annual earnings per share growth in excess of 10%.

William Joyce, chairman and CEO of Union Carbide, will join Dow's board of directors as vice chairman. One other Union Carbide board member will also join the Dow board, bringing the total number of directors to 17. Union Carbide shareholders will own roughly 25% of the new Dow. The merged company will be based in Midland, Michigan, the current home of Dow Chemical.

News to Go

The Limited (NYSE: LTD) said that due to continued strong sales momentum and overall gross-margin improvement, it expects second-quarter earnings of $0.26 per share, excluding transaction costs related to the spin-off of Limited Too. This compares with an adjusted $0.13 per share last year and the current analysts' mean estimate of $0.19. The company also reported that comparable store sales gained 7% in July.

Meanwhile, Limited subsidiary Intimate Brands (NYSE: IBI) posted a 9% increase in July same-store sales. The operator of Victoria's Secret and Bath & Body Works stores also expects earnings to come in at around $0.34 a share, up from $0.28 last year and a penny ahead of expectations.

Managed health care company Humana (NYSE: HUM) announced the abrupt resignation of its president and CEO, Gregory Wolf, who is leaving the company to "pursue other interests." David Jones, chairman of Humana's board and retired CEO, has been appointed interim CEO, heading an "Office of the Chairman." The board has launched an immediate search for a permanent CEO.

Entertainment giant Viacom (NYSE: VIA) said it has received a favorable ruling from the Internal Revenue Service designating the proposed spin-off of Blockbuster as a tax-free transaction. Viacom plans to distribute all of its holdings of Blockbuster common stock to Viacom shareholders who opt to tender Viacom shares in an exchange offer following Blockbuster's initial public offering.

Online brokerage firm Ameritrade Holding (Nasdaq: AMTD) said it has signed a lease with Corporate Office Properties Trust (NYSE: OFC) for a 120,000-square-foot facility in Annapolis Junction, Maryland, which will house a new technology development center. The center will employ more than 300 people by the end of next year and will develop new software and user-friendly technology for Ameritrade customers. It also will serve as a backup to the company's other facilities in Omaha, Nebraska and Fort Worth, Texas.

Earnings to Go

(Quarterly earnings per share versus that of the same year-earlier quarter and compared with analysts' mean estimate. Earnings exclude one-time charges and gains.)

Chiron Corp. (Nasdaq: CHIR) -- Q2 EPS: $0.18 (continuing operations) vs. $0.07 last year; estimate: $0.13 (Nasdaq: TGLO) -- Q2 EPS: loss of $0.27 (excluding amortization) vs. loss of $1.65 last year; estimate: loss of $0.32

TMP Worldwide (Nasdaq: TMPW) -- Q2 EPS: $0.30 vs. $0.24 last year; estimate: $0.27

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By Yi-Hsin Chang (TMF Puck)

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