March 30, 2011 10:51 am

Dow Chemical hires Citi to advise on sale of USD 1bn revenue polypropylene business

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Dow Chemical Co. (NYSE: DOW), the Midland, Michigan-based chemical giant, has retained Citi to sell its polypropylene licensing and catalyst business, two industry sources claiming knowledge of the situation told mergermarket.

The business has USD 1bn in revenue and about USD 50m in EBITDA, both sources said. Dow Chemical and Citi declined to comment.

Both industry sources said the sale process was at an early stage. The first source said he did not expect private equity to be interested. “It will be more of a strategic deal. It’s a tougher asset for a financial buyer,” he said. “I don’t know if the management team comes with it.”

A third industry source, who had not heard about the sale, agreed that the business would be unlikely to interest PE firms. He said the unit comprises the old Dow Chemical metalicine business, not the Rohm & Haas business, which Dow acquired in March 2009. Based on the slim margins, the source said the unit is “a commodity business obviously.”

The third source said few people have a better cost position than Dow in the polypropylene space. Therefore, bidders would be likely to include large petrochemical companies such as Shell, SABIC and Lyondell Basell.

The business will probably not fetch a traditional industry multiple because it is so highly commoditized, the third source said. In fact, the source speculated that there could be a chance Dow would end up entering a joint venture instead of selling the unit. “That happens quite a bit,” he said. For instance, BP and NOVA Chemicals created a 50-50 joint venture in November 2004 to combine their European interests in Styrene Polymers.

Dow has said publicly that it plans to move downstream into higher-margin chemical businesses and away from lower margin businesses. In March of 2010, it announced it would sell its Styron division to Bain Capital Partners in a USD 1.63bn deal.

“We are committed to further focusing our portfolio by shedding non-strategic assets that can no longer compete for growth resources inside the company,” Dow Chemical Chairman Andrew Liveris was reported to have said in a statement at the time.

The polypropylene business is part of Dow’s plastics portfolio, according to the company’s web site. It offers customers products from traditional polypropylene resins to a line of performance polymers, the web site said.

On 25 March, Dow announced it was expanding its catalyst system offering with a product designed specifically for high melt flow applications. It is the first product in Dow’s new CONSISTA portfolio of advanced catalyst systems, the company said.

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