Dow Chemical Co. said Wednesday it will close three Louisiana plants as part of a shift away from basic chemicals toward the lucrative business of specialty chemicals.
The shuttering comes as part of a massive plan to cut costs after Dow bought rival Rohm & Haas in April for more than $16 billion, a deal that added massive amounts of debt to its balance sheet.
Dow expects to take a $700 million second-quarter charge as part of Wednesday's announcement, but expects the closings will save about $100 million a year.
The approximately 100 people who work at the plants will be offered jobs elsewhere, Dow said.
The plants make ethylene, a building block for basic chemicals like plastic and packaging. The basic chemicals market is heavily affected by price fluctuations in crude oil, and products are usually made and sold in large batches and at razor-thin profits.
Dow is essentially saying it won't buy ethylene from other suppliers anymore. It had bought about 3 billion pounds a year.
Specialty chemicals _ which are used in products like cosmetics and food additives _ tend to be made in smaller batches, and are more profitable.
Rohm & Haas was a big player in the specialty chemicals market and Dow paid top dollar to get it. The bid was also made just as the global economy slumped and demand for chemicals dropped.
Midland, Mich.-based Dow was forced to slash costs and sell assets to pay off its whopping debt load and meet its goal of saving $1.3 billion by integrating the two companies.
It is that volatility that Andrew Liveris, Dow's CEO, wants to ease and he will rely heavily on specialty chemicals to deliver revenue going forward.
With the Rohm buyout, Dow's sales are roughly 60 percent specialty chemicals and 40 percent basic chemicals, compared with a previous 52 percent and 48 percent, respectively.
The Middle East has taken a larger share of the basic chemicals market, partly because there are vast supplies of crude nearby. Dow has significant operations in the region.
The company is building a petrochemical plant in Saudi Arabia with a state-owned oil company.
Meanwhile, Dow also said Wednesday that, as part of a previously announced layoff of about 10,000 workers, it would take a charge for 2,500 layoffs. The move is essentially an accounting measure meant to spread out expensive charges.
After Wednesday's announcement, Deutsche Bank analyst David Begleiter said he sees long-term value in Dow's shares, but worries about the company's plans to sell certain assets and boost sales amid the recession. He recommended that investors with shares of Dow hold onto them.
Shares of Dow fell 16 cents, or 1 percent, to close at $15.98 Wednesday. The stock has traded between $5.89 and $39.99 in the past 52 weeks.
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