Merger Dow and Union Carbide to impact the global polymer industry

Aug 04, 1999 02:00 AM

The merger of Dow Chemical and Union Carbide is going to significantly impact the competitive dynamics in the polymer industry. The combined company is likely to impact other major polymer companies in a significant manner through its low-cost position and global presence.
According to a management consultant, "Because of the size and technical platform that the combined company now has, its competitors will have to rethink their strategy to compete."
He notes that, "The merger enables the two companies to leverage their core strengths to complement the combined product portfolio and better serve a wider range of customers. Both companies have done an excellent job of rationalising their cost structures and this will lead to tremendous pressure on their competitors. We expect continued consolidation activity in the polymer industry as an outcome of the Dow Chemical - Union Carbide merger."
Both Dow Chemical and Union Carbide have very strong positions in technology licensing. According to a business manager, "The combined technology platform of Dow Chemical and Union Carbide presents further opportunities for licensing of these technologies on a global basis. Consequently, an interesting scenario to monitor is what will happen to the Univation joint venture with Exxon Chemical that employs Exxon's metallocene catalyst technology, in contrast to Dow's single site INSITE catalyst technology."
The polymer value chain is very diverse with a number of players that dominate only specific points in the chain.
"Dow Chemical and Union Carbide can now combine their strengths to develop a formidable position in the polymer value chain, starting from basic chemicals to derivatives. It will, however, be interesting to watch which of these businesses will eventually be part of the combined company," comments an analyst.

The merger positions the combined company as the global leader in polyethylene and creates a significant gap with Equistar, now the second largest supplier. This will further allow Dow Chemical - Union Carbide to increase its overall competitiveness. Further, Dow Chemical, which had no presence in polypropylene in North America, will now be able to position itself to strengthen its global competitiveness. Previously, Dow Chemical had a presence only in Europe.
According to an official, "We expect that the gas-phase EPDM business of Union Carbide is likely to be combined with the DuPont-Dow Elastomers joint venture. Will it lead to some new partnerships in this business in light of this development?"
The merger also combines the leader in styrene butadiene latex business (Dow Chemical) with the leader in the vinyl acrylics business (Union Carbide) resulting in the combined company becoming the second largest emulsion polymer supplier behind Rohm & Haas in North America.
He comments, "This has widened the gap between the second and the third player. However, since each company's business focus is on different end-use markets, the issue we are wondering aboutis what is the likely scenario for Union Carbide's emulsions business. Will it be integrated, sold, or kept as a stand-alone business?"
This merger creates a unique business model in the plastics and polymers industry since the combined company plans to employ critical mass and low cost production approach to generate cash for investments into innovative technologies.
"We are very impressed by the commitment of both Dow Chemical and Union Carbide to using technology as a weapon to enhance their competitiveness. We expect that this strategy will strongly position them to maintain their competitive advantage that is derived from technology and market leadership," comments a senior consultant.

Source: Kline & Company, Inc.
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