MUMBAI/NEW YORK Dow Chemical Co said on Monday it will close 20 facilities, divest several businesses and cut 5,000 jobs, making it the latest large chemical company to throttle back operations due to the global economic slump.
In addition to cutting 5,000 full-time jobs, or 11 percent of its workforce, the company also plans to reduce the number of outside contractors it employs by 6,000, or about 30 percent, and temporarily idle about 180 plants. Dow's shares rose over 7 percent in afternoon trade following the announcement.
Dow said its action, which comes less than a week after its U.S. rival DuPont Co announced cutbacks, marks an acceleration of its "transformational strategy" and should lead to annual cost savings of $700 million by 2010.
The freeze in the global credit markets and a recession in many developed economies has hurt Dow and its peers. The companies have also suffered from a sharp slowdown in many emerging regions -- areas which had been driving growth for them in recent quarters.
"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," Chairman and Chief Executive Officer Andrew Liveris said in a statement.
The Midland, Michigan, chemicals maker is also in the process of buying specialty chemicals producer Rohm & Haas Co for $15.3 billion, a move the companies expect will yield $800 million in savings by 2010.
The company is also contributing a portion of its assets to a joint venture with Kuwait Petroleum Corp. The joint venture will make chemicals used in products ranging from plastic bottles and compact disks to computers and agricultural compounds.
Dow plans to transform its earnings profile by growing its high-margin specialty chemicals business, while reducing its exposure to the more cyclical commodity chemicals business through a series of joint ventures.
Dow, the largest U.S. chemical maker, said the facility closures will target high-cost locations. The company also plans to sell non-strategic businesses.
Dow said it expects its restructuring actions to result in fourth-quarter pretax charges of $700 million. The moves will hurt earnings in the quarter by 50 to 60 cents a share, the company said in a presentation.
The company expects its actions to result in annual cost savings of $350 million by the end of 2009 and $700 in annual cost savings by the end of 2010.
Chemical companies supply manufacturers of electronics, automobiles, paper, paint and a wide array of other companies that have all been hurt by the weak global economy and are all lowering output levels -- reducing demand for chemicals.
Dow and other chemical makers have warned that fourth-quarter shipment volumes have fallen between 10 and 20 percent.
Dow's restructuring move was widely expected after DuPont and Germany's BASF AG announced similar actions.
BASF, the world's largest chemicals maker by revenue, last month said it was temporarily shutting down around 80 plants worldwide and reducing production at about 100 plants, due to a massive decline in demand.
Last week, DuPont announced it was expecting a fourth-quarter loss and outlined plans to cut 4.2 percent of its workforce. Celanese Corp and Eastman Chemical Co have also issued profit warnings in recent weeks.
"We expect a number of additional earnings warnings to be issued in the coming days as other companies acknowledge the exceptional destocking activity underway," said Goldman Sachs analyst Robert Koort, in a note to clients.
Dow's shares rose $1.36 to $20.36 in afternoon trade on the New York Stock Exchange.
(Reporting by Euan Rocha and Matt Daily, editing by Gerald E. McCormick and Dave Zimmerman)