How Dow Chemical Wants to Reshape Materials

By David Benoit Features Dow Jones Newswires

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.

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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.

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"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)