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.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.