US-based Dow Chemical has said it will spin off a portion of its century-old chlorine business and merge the new entity with smaller rival Olin in a tax-efficient deal worth $5bn (£3.36bn, €4.59bn).
The Reverse Morris Trust transaction is a part of Dow's efforts to shed low-margin assets. A Reverse Morris Trust deal combines a tax-free spin off with a pre-arranged merger.
Dow chief executive Andrew Liveris said there could be more deals over the next 12 months as his firm simplifies its joint ventures.
Key Private Bank analyst Stephen Hoedt told Reuters that Olin will now control 30% of the North American chlor-alkali market but that regulatory barriers to the deal were unlikely.
Shares of Dow Chemical finished 2.84% higher on 27 March, valuing the company at $55.3bn.
Olin's stock finished 14% higher, valuing the firm at about $2.4bn.
Dow will sell its US Gulf Coast chlor-alkali and vinyl, global chlorinated organics and epoxy assets, according to a company statement.
The chemicals giant will get $2bn in cash and cash equivalents and about $2.2bn in Olin shares.
Olin will assume $800m of pension and liabilities under the deal.
The transaction will give Dow shareholders control of the combined company.
The deal will make chemicals rival Olin the world's largest producer of chlor-alkali, which is used to make chlorine and caustic soda, chemicals are used in a variety of industries like textiles, automotive and healthcare.
The deal, expected to close by end-2015, will create a firm with a revenue of about $7bn and EBITDA of $1bn.
Dow avoided a proxy fight with activist investor Dan Loeb last November by agreeing to add four independent directors to its board.
Dow, which had been pressured by Loeb to break itself up, first announced plans to sell a bulk of its chlorine operations in 2013.