Oxy, Olin To Form $1.2 Billion Chloralkali Business
In the United States, the venture's combined chloralkali capacity will make it a significant number two after Dow Chemical Co. (Midland, MI). It will combine approximately 2.2 million st/yr chlorine capacity from OxyChem with 1.0 million st/yr from Olin. Dow operates 4.4 million st/yr of chlorine capacity out of total US capacity of approximately 14.5 million st/yr.
Based in Dallas, the new business will have annual capacity for 4 million st/yr of chlorine, 4.1 million st/yr of caustic soda, and 425,000 st/yr of potassium hydroxide. OxyChem would own about 66 percent of the venture, and Olin about 34 percent.
The partners expect to achieve cost savings of at least $60 million annually through operating and supply-chain efficiencies and consolidation of administrative functions. Olin says the anticipated $60 million in savings will be shared equally by both parent companies. Olin also sees opportunities for even greater savings over the long run, which will be shared based on the parties' relative ownership interests.
The companies expect to launch the business by the fourth quarter of 2000, subject to company board approval, completion of definitive agreements, and review by regulatory agencies. Neither company expects to incur any new debt related to the venture's launch.
OxyChem says it will contribute certain chloralkali, ethylene dichloride (EDC, a precursor to polyvinyl chloride), potassium hydroxide, and related coproduct businesses and facilities to the venture. The deal does not include two Texas chloralkali plants in Deer Park and Battleground with 920,000 st/yr chlorine capacity operated by the company's OxyVinyls, LP, joint venture with Geon Co.
It will also contribute its interest in two joint ventures. The first, Armand Products Co., is a joint venture with Church & Dwight Co. (Princeton, NJ). Its Muscle Shoals, AL, facility is the world's largest producer of potassium carbonate (100,000 st/yr) and the sole US producer of potassium bicarbonate (5000 st/yr).
The company's Brazilian joint venture, Carbocloro SA Industrias Quimicas, has annual capacity for 253,000 mt chlorine, 284,000 mt caustic soda, 140,000 mt ethylene dichloride, 178,000 mt sodium hypochlorite, and 250,000 mt hydrochloric acid, and 79.2 m2 hydrogen in Cubatao. The company's partner is Brazil's União das Indústrias Petroquímicas S/A (UNIPAR),
Olin will contribute its US and Brazilian chloralkali, sodium and potassium hypochlorite, and sodium hydrosulfite operations. It will also provide its interest in the Sunbelt joint venture with The Geon Co. Sunbelt operates a modern, $200 million, 225,000 st/yr chlorine plant in McIntosh, AL. Geon buys all the output for its PVC operation, while Olin markets the plant's caustic soda output.
The new venture and sale of its chemical intermediate operations leaves OxyChem with three joint-ventures: the new chloralkali operation, its 76% ownership in OxyVinyls, an integrated PVC producer with separate chloralkali operations; and a performance chemicals group that produces silicates, chrome and swimming pool chemicals. OxyChem also owns 29.5% of Equistar, which supplies ethylene to these units.
"The combination of Olin's and Occidental's chloralkali operations will result in a more competitive chloralkali business offering a breadth of manufacturing and shipping options to better serve a wide variety of customers and end users on a global basis," says Olin chairman/president Donald W. Griffin. "There are numerous opportunities to achieve significant production and distribution efficiencies which are absolutely critical to the success of this highly competitive commodity business."
Griffin expects Olin's earnings per share to increase by $0.40 on an annualized basis before the end of 2002. Olin plans to resume its share repurchase program after it has reached a definitive agreement with Occidental.
By Alan S. Brown