Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
So what: Dow is splitting off its "U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses" and merging them with Olin in a Reverse Morris Trust transaction. Olin will pay $2 billion in cash, $2.2 billion in stock, and take on $800 million in pension and other liabilities to acquire the assets.
Management thinks the businesses compliment each other and have targeted $200 million in cost savings due to the combination. They also said that pro forma EBITDA will be $1 billion based on last year's numbers.
Now what: At the end of the transaction, Dow shareholders will own 50.5% of the new business with current Olin shareholders owning the rest. If Olin's management is able to execute on cost reductions the deal could indeed be a huge win for the company. I'm usually skeptical on mergers, but in this case I think it will be a big win for both Dow and Olin shareholders, even though it may take time for the strategic advantages of combining to play out.