Dow Chemical is breaking off a significant part of its chlorine operations in a deal with Olin Corp. valued at $5 billion.
Dow has been under pressure from the hedge fund Third Point LLC to split its specialty chemical and petrochemical businesses.
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Dow CEO and Chairman Andrew Liveris said in a statement that the Olin deal has helped the Midland, Michigan-based company exceed its target to divest $7 billion to $8.5 billion of non-strategic businesses and assets.
Its stock rose more than 5 percent in Friday premarket trading.
Dow said that it would join its chlor-alkali and downstream derivatives businesses with Olin Corp. in a cash-and-stock transaction. The transaction includes Dow's U.S. Gulf Coast chlor-alkali and vinyl, global chlorinated organics and global epoxy businesses.
The deal includes $2 billion of cash and cash equivalents to be paid to Dow; an estimated $2.2 billion in Olin common stock and about $800 million of pension assumptions and other liabilities.
The new company will have annual revenue of nearly $7 billion.
Shareholders of Dow Chemical Co. will receive about 50.5 percent of Olin's stock, with existing Olin shareholders owning about 49.5 percent.
Clayton, Missouri-based Olin said that it anticipates annual cost savings of at least $200 million within three years. Joseph Rupp will remain as Olin's CEO. Its board will include the existing nine Olin directors and three new members to be designated by Dow.
Shares of Olin surged more than 26 percent before the market open.
The deal, which is targeted to close by year's end, still needs approval from Olin shareholders.
Dow and Olin also announced a separate, 20-year long-term capacity rights agreement for the supply of ethylene by Dow to Olin.