Dow Chemical to slash 5,000 jobs, shut 20 plants
Dow Chemical to slash 5,000 jobs, shut 20 plants
Dec 8, 6:44 PM (ET)
By ERNEST SCHEYDER
NEW YORK (AP) - Dow Chemical Co. (DOW) (DOW) said Monday it will slash 5,000 full-time jobs - about 11 percent of its total work force - close 20 plants and sell several businesses to rein in costs amid the economic recession.
The company, one of the largest chemical makers in the world, expects the plan to save about $700 million per year by 2010. Dow also will temporarily idle 180 plants and prune 6,000 contractors from its payroll.
Exactly which workers and plants will be affected is still being determined, a company spokesman said.
"We are accelerating the implementation of these measures as the current world economy has deteriorated sharply, and we must adjust ourselves to the severity of this downturn," Chief Executive and Chairman Andrew N. Liveris said in a statement.
Last month, Dow Chemical had said it would review all options to reduce costs and eliminate or defer capital spending. Dow's actions follow those of rival DuPont, who last week said it would cut 2,500 jobs and warned it won't turn a profit in the fourth quarter due to a slowdown in the automotive and construction markets.
Like Dow, Wilmington, Del.-based DuPont is releasing 4,000 contractors, halting discretionary spending, slowing or stopping noncritical projects, and temporarily idling more than 100 manufacturing units. The yearlong restructuring plan will affect about 4,200 employees, or roughly 7 percent of DuPont's work force.
Due to this latest move, Dow said it will take a fourth-quarter charge of $700 million, or 50 cents to 60 cents per share, to cover $350 million in severance payments and $350 million worth of plant shutdown costs.
But the company assured shareholders it has no plans to cut its dividend, which has been issued quarterly for nearly a century.
"We will not break that string ... not on my watch," Liveris said in a call with investors.
The Midland, Mich.-based company expects "the new Dow" to be comprised of three units: joint ventures; performance products; and health and agriculture, advanced materials and other market-facing businesses.
The plan appeared to be well-received on Wall Street, where Dow's stock jumped $1.37, or 7.2 percent, to close the session at $20.37. The broader markets also rallied on an infrastructure spending plan put forth by President-elect Barack Obama.
"We believe that there will be some pain to be realized in the near-term, so staying on the sidelines appears prudent to us," BB&T Capital Markets analyst Frank Mitsch said in a note to investors. "However, we see plenty of opportunity for long-term investors given the excellent dividend yield." The stock is still worth less than half of the $45.50 it peaked at a year ago.
Mitsch - who kept a "Hold" rating on the company - lowered his earnings outlook for the fourth quarter to 30 cents per share from 54 cents, and for 2009 to $2 per share from $2.75. Analysts polled by Thomson Reuters expect, on average, fourth-quarter earnings of 42 cents per share and 2009 earnings of $2.20 per share, on average.
The reorganization comes just days after the company closed on a plan to spin part of its plastics business into a joint venture with a Kuwaiti company that will be called K-Dow Petrochemicals and located in Michigan.
Dow also is slated to close on its $15.3 billion buyout of Rohm & Haas Co. (ROH) (ROH) early next year, a deal it hopes will help it grow into the high-margin specialty chemicals market. The company expects that deal to result in about $800 million in savings over time.
The joint venture and Rohm & Haas deal, as well as other industry deals like Ashland Inc. (ASH)'s buyout of Hercules Inc. and Huntsman Corp. (HUN)'s potential sale to private equity, come as the global credit markets have all but ground to a halt, leading some to question the validity of high-priced deals in the industry amid the economic turmoil.
"The credit market situation is one which we haven't seen in a couple generations, if ever," Jefferies & Co. analyst Laurence Alexander said recently. "Doing anything that requires raising additional capital is problematic."
Prices for crude oil - used to make many chemicals - hit an all-time high of $147.27 in early July but have since dropped to about $43. They continue to be volatile, making business planning difficult.
Huntsman, which agreed to be bought by Hexion Specialty Chemicals in July 2007 for about $6.51 billion, is now suing Credit Suisse (CRP) and Deutsche Bank, two banks that backed away from funding the deal.
"Most of these deals were agreed to before the economy went in the tank," said Steve Kaplan, a professor at the University of Chicago Booth School of Business. While the original logic behind the deals is still solid, some buyers may regret agreeing to high prices now that the economy is in a recession and cash positions precious, he said.
Ashland, which makes the iconic Valvoline line of lubricants, slashed its dividend 73 percent last month after paying $2.4 billion - including $700 million in debt - for Hercules. Since the deal closed, Ashland's stock has dropped about 50 percent.
Yet ironically, the economic slump may provide the perfect cover for companies that need to take drastic steps.
"During this downturn, I would do every awful thing that I'd hold my nose doing," said Kathryn Harrigan, a professor at the Columbia Business School.
From slashing guidance to trimming operations, best to get the bad news out of the way while everyone's focused on the negative and then look ahead, she said.
AP Business Writer Deborah Jian Lee in New York contributed to this report.
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