Dow Chemical Co. said Monday it would slash about 5,000 full-time jobs, or about 11 per cent of its global staff, and eliminate an additional 6,000 positions in its contractor workforce as it moves to address "current economic realities."
In addition, Michigan-based Dow said it would idle 180 plants and shutter 20 facilities in "high-cost locations," cutting about 30 per cent of its total production.
"Reflecting poor current market conditions, Dow will temporarily idle approximately 180 plants and significantly reduce its contractor workforce worldwide by approximately 6,000 as predicated by reduced operations," the company said ina statement.
Consequently, shares of the No.1 chemicals maker in the US rose in most in more than a month in New York trading after news of this cost-cutting hit the bourses. Dow soared $1.46, or 7.7 per cent, to $20.46 at 11:40 a.m. in New York Stock Exchange composite trading.
"The entire industry supply chain [that Dow serves], all the way to what the consumer buys - outside of food and healthcare - is in a recessionary model," said chairman and CEO Andrew Liveris on a conference call with analysts.
Due to the restructuring, Dow said it would post a pretax charge in the current quarter of $700 million, including $350 million for severance packaged and a $350 million related to the closing of facilities. That should impact quarterly earnings by 50 cents to 60 cents a share. Dow will also be hit with a related $80 million charge in 2009, but the move should eventually result in $700 million in annual cost savings by 2010, the company said.
The company also plans to reduce its working capital next year by $2 billion and have about $600 million in lower capital spending, reducing 2009 cash requirements by about $2.5 billion and delivering an additional $1 billion in free cash flow, said CFO Geoffrey Merszei.
Liveris repeated his promise to maintain the quarterly dividend, which hasn't been reduced for 96 years. ''We will continue to pay our dividend,'' he said. ''We will not break that string, not on my watch.'' The company plans to sell several unspecified ''non- strategic businesses,'' which will account for about 2,000 of the jobs to be eliminated, he said.
''We are accelerating this move given the deterioration of the global economy and most of our markets,'' said Liveris. The idled plants represent about 30 per cent of Dow's total factories and will be split evenly between North America and Europe, he said. By idling plants, rather then shutting them down completely, Liveris said Dow would be able to increase production once the economy improves while avoiding hefty startup costs.
DuPont, the third-biggest US chemical maker, last week said it will close plants at 10 production sites, idle 100 factories and eliminate 4.2 per cent of its workforce. BASF, the world's biggest chemical company, is shutting 80 factories and reducing production at 100 more.
Monday's announcement also represents an acceleration of a broader company strategy to decentralise Dow into three different business models with a leaner, more efficient corporate centre. The restructuring anticipates continued weak demand from US automakers, Liveris said. Dow gets about 10 per cent of sales globally from automobile markets, Merszei said.
"We have the portfolio in hand to move to this new model," Liveris said. "Clearly we are accelerating this move given the deterioration in the world economy and in most of our markets."
The company statement said, "The new Dow will comprise three different business operating models: joint ventures / asset light; performance products; and health & agriculture, advanced materials and other market facing businesses. Specific details on these business structures will be outlined early next year.
Specifics of the new operating models will be outlined next year, the company said. But at its heart is an agreement made last year in which Dow sold a 50 per cent interest in its raw plastics businesses to Petrochemical Industries, a subsidiary of state-run Kuwait Petroleum Corp. In turn Dow gained greater access to emerging market growth and petrochemical materials used in its products.
It will also result in a 50-50 joint venture, K-Dow, which is expected to begin operations by 1 January, and have annual sales of $15 billion. Further, Dow said it expects to receive $9 billion in total pre-tax proceeds once the deal is complete. The plastics venture also will provide cash for the acquisition of Rohm & Haas Co., which will be completed in the first quarter, Liveris said. (See: Dow Chemical acquires Rohm & Haas for $18.8 billion)
The company, which employs about 46,000 worldwide, earned $2.89 billion on $53.5 billion in revenue last year.