Dow Chemical to cut 5,000 jobs
The chemical maker said it expects to save $700 million a year as a result of the restructuring.
NEW YORK (CNNMoney.com) -- Dow Chemical Co. said Monday it will streamline its business by cutting about 5,000 jobs, closing plants and shedding assets.
The company also said it plans to close 20 facilities and shed high-cost assets and several non-strategic businesses. It will also idle 180 plants and cut 6,000 global contractors.
Dow, one of the largest chemical makers in the world, said it will also scale down its headquarters and revamp its corporate structure.
The company said it expects the restructuring, which will be effective in January, to save $700 million in annual costs by 2010. It said the savings would be in addition to the previously announced $800 million a year from the anticipated Rohm and Haas (ROH, Fortune 500) acquisition.
"The current world economy has deteriorated sharply, and we must adjust ourselves to the severity of this downturn," said Dow Chairman Andrew N. Liveris, in a statement.
Dow's plans were not a shock considering other chemical companies' cutbacks, said Michael Judd, analyst at Greenwich Consultants. "The only surprise is that it took them so long to make the announcement," he said.
For example, German chemical giant BASF SE (BASF.Y) announced in November it was shutting down about 80 plants globally and reducing production at nearly 100 plants, citing a sharp decline in demand.
"I hate to be so pessimistic, but it's an issue with a company that is so capital intensive," Judd added about Dow. "The human resource part of the equation is not the major cost component. It's the huge investment in machinery and equipment. And when those things are idle, there are enormous inefficiencies."
Closing facilities is not as simple as it sounds, Judd added. Idling plants may be a more attractive option for some companies, as a permanent shutdown can incur huge costs to perform the required task of mediating all environmental issues.
"I do think Dow Chemical will survive, but they're in for a very difficult and challenging earnings environment for at least the next year," Judd said.