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Dow Chem cuts 4,500 jobs
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May 1, 2001: 11:42 a.m. ET
Chemical maker says cuts, double original target, tied to Union Carbide purchase
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NEW YORK (CNNfn) - Dow Chemical Co. said Tuesday it will cut 4,500 jobs, or about 8 percent of its workforce, making it the latest major company to announce job cuts in the wake of a slowing economy.
The No. 2 chemical maker behind DuPont Co. (DD: down $0.01 to $45.18, Research, Estimates) also expects cost savings following its recent $7.3 billion acquisition of Union Carbide Corp. and rising energy and raw materials prices.
Dow's (DOW: up $0.81 to $34.26, Research, Estimates) news came just hours before a report from the National Association of Purchasing Management said U.S. manufacturing growth continued to shrink in April, though at a slower pace than in March.
The report indicates that major manufacturers, such as Dow, continue to cut back on production and reduce inventory as the recent economic downturn dampens demand for many consumer products.
However, the slower pace of decline suggests inventory levels may nearly be adjusted for the lower demand, suggesting a possible upswing in manufacturing in the near future.
Still, Dow joins a laundry list of big companies that have cut thousands of jobs in recent quarters in massive cost-cutting efforts to stay profitable in the slowing economy. Last month, consumer products maker Unilever cut 8,000 jobs and auto maker DaimlerChrysler (DCX: up $0.27 to $49.62, Research, Estimates) axed 26,000 workers in January as part of a major restructuring.
Troubled communications equipment maker Lucent Technologies (LU: up $0.53 to $10.54, Research, Estimates) eliminated 10,000 jobs in January.
Dow said Tuesday that eliminating the 4,500 jobs should result in annual cost savings of $1.1 billion from the Union Carbide purchase when integration is complete in the first quarter of 2003. That exceeds earlier cost-saving estimates of $500 million when the purchase was first announced Aug. 4, 1999. At that time, the company said it expected to cut 2,000 jobs due to the merger. The deal did not close until Feb. 14, 2001.
The company said it believes the merger will add to earnings per share in the first half of next year, with earnings benefits coming from both cost savings and revenue growth.
"Achieving these synergies will be critical to ensure that this merger creates long-term value for our stakeholders," CEO Michael Parker said. "Fundamental to our approach to employees has been the expectation that everyone – whether staying or leaving – will be treated with the utmost respect and dignity."
Last week, Dow reported a special pre-tax charge of $1.4 billion for merger-related expenses and restructuring, including transaction costs, employee severance and the writedown of duplicate assets and facilities.
Click here to read more about corporate layoffs
In addition to general pressure within the entire manufacturing sector, chemical manufacturers are struggling with the double whammy of higher raw materials and energy costs that increase expenditures and eat away at profits. The company said energy and raw materials price hikes increased costs by $600 million in the first quarter.
In its first quarter, Dow reported a loss of 76 cents a share in contrast to net income of 57 cents a share a year earlier and short of Wall Street expectations. 
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