How Dow Chemical Wants to Reshape Materials
July 30 2017 - 9:54AM
Dow Jones News
By David Benoit
MIDLAND, MICH -- Travelers on Saginaw Road in Midland, Mich.,
find themselves directly in the middle of a project that Dow
Chemical Co. says represents the future of material sciences.
To the west is a sprawling campus of chemical plants and
research labs that Dow calls its Michigan Operations. Directly
across the street is Dow Corning's Midland plant, where it has
pioneered silicone products.
For more than 70 years, the road was a barrier. Though Dow was a
50% owner of Dow Corning, a joint-venture with Corning Inc., the
companies didn't often interact and stayed on their own sides of
materials. Last June, Dow bought out Corning and has been
integrating silicone into its arsenal.
Dow says the deal has gone well: It has already cut $500 million
in costs faster than expected and says it will now hit $650 million
in savings. Combined with the separate, much larger, merger with
DuPont Co. and the subsequent spinout of a Midland-based materials
company, Dow executives believe they've set up a growth
company.
But a group of powerful shareholders think Dow Corning and Dow
should be separated again, arguing the stock market would pay more
for Dow Corning's future.
Dow executives say the investors are missing both the science
and commercial benefits of the combination. Dow Corning's earnings
growth had stalled in the years before the deal, but earnings
before interest taxes, depreciation and amortization have doubled
since and last week they said it would add $2 billion by 2019,
twice the initial estimate. They say the growth would go away with
a split.
"When you come to a fork and you go left, everyone can always
hypothesize on what would have happened if you went right, but no
one can ever know," says Chief Financial Officer Howard
Ungerleider. "Dow Corning is the perfect example of we know both
sides of the fork."
Executives said the benefits start with customers. Some, such as
makers of beauty products or building products, mix both silicones
and Dow components into their products, but they had to experiment
themselves. Now Dow can present a finished product. Meanwhile, Dow
has expanded Dow Corning around the globe and put it in front of
larger customers, particularly in the automotive industry,
executives said.
Plus, the underlying chemistry -- the actual mixing of silicones
with ethylene and propylene -- would also be lost in a split, they
said.
Florian Schattenmann, head of research and development, talks
excitedly about the potential of mixing silicones with ethylene and
propylene to create brand-new materials. Today, most of the R&D
is answering customer demands, but Mr. Schattenmann talks about
delivering new properties and capabilities the way Steve Jobs once
said customers don't know what they want.
He buzzes through Dow's labs, where scientists use robots to
measure, mix and read. The machines standardize testing -- removing
potential human error -- and run hundreds of experiments at once.
The data are all stored to help Dow scientists build an immense
chemical library.
Dow is even working with local government to remove the physical
barrier of Saginaw Road: It has petitioned to close the road to
public traffic between the two campuses.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
July 30, 2017 09:39 ET (13:39 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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