US chemical giant disposes of unwanted operations in tax-free deal

Dow Chemical is set to sell off its chlorine operations to Olin for $5 billion (£3.4 billion). The tax-free sale follows on from a commitment made by the multinational in December 2013 to let go of a ‘significant portion of its chlorine value chain’.

Since the foundation of the company in 1897, Dow has been heavily invested in chlorine-based chemical production, including chemicals used in bleach, PVC and caustic soda. In recent years, however, the corporation has signalled its intent to leave the sector, citing lower market growth for cyclical commodity chemicals.

Olin, a commodity chemical firm based in the US, will purchase Dow’s chlorine operations through a scheme called a reverse Morris trust. Under such a structure, Dow will create a spin-off company by forming a small subsidiary that will merge with Olin, who will offer shares to Dow. These shares will subsequently be distributed between Dow’s shareholders as part payment for its chlorine assets. Under the plans, Dow would not be liable for tax as a consequence of a loophole.

As part of the deal, Olin will offer Dow $2.2 billion in shares. The remaining $2.8 billion will be transferred via cash and through liability acquisition.