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May 7, 2001
Volume 79, Number 19
CENEAR 79 19 pp. 11
ISSN 0009-2347
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Company ups savings estimate from Union Carbide merger to $1.1 billion


Three months of full access to Union Carbide's operations has allowed Dow Chemical to iron out its integration plans. The company has determined it can save more money and make deeper job cuts than it originally anticipated.

Dow plans to reduce its pay-roll by 4,500 employees, or more than 8% of the combined Dow/Carbide workforce. About 80% of these reductions will be achieved by February 2002. Previously, estimates called for eliminating about 2,000 positions.

Dow has also upped its merger-related savings estimates from $500 million to $1.1 billion a year. Dow aims to achieve $650 million in the first 12 months following the merger and the rest in the second year. "The integration plan is the silver lining in an 18-month cloud of closing," said Michael D. Parker, Dow's president and CEO at a meeting with financial analysts last week.

The workforce reductions will yield about $600 million of the savings, close to $400 million more than originally expected. The balance will come from increased purchasing power and improving the manufacturing supply chain.

Using Carbide's October 1999 employment levels as its benchmark, Dow will eliminate about 80% of the administrative, 45% of the sales and marketing, 35% of the R&D, and 25% of the manufacturing positions it received from Carbide in the merger. The company notes, however, that the layoffs will come from both Dow and Carbide.

ASSETS Freeport, Texas, facilities are a mainstay of Dow's business.
"We are doing this in a way that minimizes the impact on people and demonstrates respect for those affected," said J. Pedro Reinhard, Dow's executive vice president and chief financial officer, noting that employees will know their employment status by August.

Carbide's Danbury, Conn., headquarters facility will bear the brunt of the administrative layoffs, Parker admitted. Danbury, at least temporarily, will be a hub for some of Dow's performance chemical businesses, but in the long run Dow will look for another East Coast location. "We intend to run the lease out," Parker said.

This is a critical time in a merger that has created the largest chemical company--excluding pharmaceuticals, oil, and gas--in the world, Parker says. "Getting an integration right is getting the employee and customer components right," he noted. "Failure to do either exceptionally well will result in mediocre results at best and failure at worst."

Parker, however, is confident in the plan, which incorporates some 300 separate projects. "Since the February close, we had the chance to dig into Carbide's businesses and we are very pleased with what we see."

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