By Frank Esposito, Plastics News staff
Midland, Michigan - The global economic recession is taking its toll at Dow Chemical Co. as the plastics and chemicals firm announced the elimination of 11 000 jobs globally 8 Dec.
Midland, Michigan-based Dow will eliminate 5000 full-time jobs and 6000 contractor positions, officials said. The firm will also permanently close 20 plants, sell off several non-strategic businesses and temporarily idle 180 additional plants.
Plants to be idled represent about 30 percent of Dow's global production, and will be split almost evenly between North America and Europe. Officials said that further details on plant closures and job cuts would be provided in early 2009.
Dow will take a $700 million pretax charge in the fourth quarter of 2008 for the moves, which will result in annual operating cost savings of $700 million. In 2009, Dow also will reduce its working capital by $2000 million and lower its capital spending by $600 million.
Moving forward, Dow will have three business models:
* Joint Ventures/Asset Light
* Performance Products
* Health & Agriculture, Advanced Materials and Market Facing Businesses
"This is a new way of working at Dow, as a market-driven, technology-centric company." Dow chairman and chief executive officer Andrew Liveris said during an 8 Dec teleconference. "Shedding non-productive assets will create agility in how we react to the market place."
The 5000 full-time job cuts represent 11 percent of Dow's current work force. On the contractor side, the 6000 eliminations equal 30 percent of Dow's current total.
"We've been on code red for the last two months, diving through analysis of market conditions," Liveris said. "The entire industrial supply chain, outside of food and health, is in a recessionary model."
However, Liveris was adamant that Dow would continue to pay out its regular cash dividend, just as it's done for every quarter since 1912.
"We will not break that string," he said. "Not now, not on my watch."
Liveris added that the scope of Dow's action "speaks to the visibility" in the industry.
"We have very little visibility going forward," he said. "Dow has large integrated sites that we can turn down, but not off, because that would create a lot of cost later on. We're going to pick those sites [to close or idle] with the least impact on businesses that are doing well, so we can minimize cash burn in uncertain times.
"Once we get some visibility, we'll be able to turn them back on quickly. This isn't a complete disruption. December and January isn't a bad time to have factories dialed down or off."
Dow's largest integrated North American site is in Freeport, Texas, where the firm has 4500 employees and 4000 contract workers. In polyurethanes, the site makes MDI (methylene diphenyl diisocyanate), TOD (toluene diisocyanate) and polyols. It also produces polyethylene, polypropylene and a host of other chemical products. Texas media previously had reported that "thousands" of contractors would be let go in Freeport.
The cuts come as Dow is completing two major financial deals. Its K-Dow joint venture with Petrochemical Industries Co. of Kuwait - which includes Dow's polyethylene, polypropylene and polycarbonate businesses - opens its doors 1 Jan, but the JV's value has fallen by more than $1000 million since it was announced earlier this year. Dow also is buying specialty chemicals and plastics additives maker Rohm and Haas Co. for almost $19000 million. Dow's July bid for Rohm and Haas was more than 70 percent higher than Rohm and Haas' stock price at the time.
Dow's nine-month sales for 2008 rose 19 percent against the year-ago period to $46 600 million, but the firm's profit tumbled 13 percent to $2100 million.
On Wall Street, news of the cuts sent Dow's per-share stock price up about 8 percent to $20.50 in early trading 8 Dec. The price had been above $35 in mid-September, but had fallen under $20 by mid-November.