Dupont and Dow Chemical Combine in One of Biggest Mergers of 2015
Chemical titans DuPont and Dow Chemical Co agreed to combine in an all-stock merger valued at $130 billion, a move that could trigger more consolidation, please activist investors and generate tax savings while drawing scrutiny from regulators.
IHS Markit Resources
The New Map of Global Gas
A major research study offering insight into how supply, demand, prices, and markets for natural gas will change as nontraditional sources of gas are developed.
- Supply Chain Risk 2.0 – Understanding Supplier Networks and…
- Chemical Supply Chain Insight: 5 Steps to Becoming More Resilient
- Effective Strategies for Mitigating the Risks of Counterfeit…
- Enabling Smarter Purchasing Decisions & Supply Chain Cost…
- All Resources
IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and expertise to forge solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government,…
- Company Quicklook
The “deal of three centuries,” as Wells Fargo analyst Frank Mitsch dubbed it, will combine two of the biggest and oldest U.S. chemical producers in a prelude to a split into three publicly traded businesses, focusing on agriculture, materials and specialty products.
Dow and DuPont shares fell on Friday after soaring earlier in the week following reports of negotiations between the two companies.
The deal, announced on Friday, will face intense regulatory scrutiny, analysts said, especially over combining their agricultural businesses, which sell seeds and crop protection chemicals, including insecticides and pesticides.
Executives from both companies said the agrichemicals businesses have little overlap and any asset sales would likely be minor.
Potential tax savings were one reason for the complicated merger-before-breakup deal, analysts said. “They need to merge first in order for the subsequent spin offs to qualify as tax free transactions in the United States,” said SunTrust Robinson Humphrey analyst James Sheehan.
Dow shareholders would own 52 percent of the new company after preferred shares are converted, while DuPont investors would own the remaining 48 percent, the companies said.
The merger, one of the biggest of the year, would allow Dow and DuPont to rejig assets based on the diverging fortunes of their businesses.
The companies have been struggling with falling demand for farm chemicals due to slumping crop prices and a strong dollar, even as their plastics businesses thrive thanks to low natural gas prices.
DuPont, which is 213 years old, makes products used in petrochemicals, pharmaceuticals, food and construction. Its brands include Kevlar and formerly Teflon, now part of Chemours Co, which it had spun off.
The 118-year old Dow makes plastics, chemicals, hydrocarbons, and agrochemicals. It manufacturers Styrofoam insulation products and chlorine products, used in paper, pulp and soap and owns half of silicone products maker Dow Corning. It said on Friday it would buy the remaining stake in the joint venture from Corning Inc.
Edward D. Breen, chairman and chief executive officer of DuPont, pictured with Andrew N. Liveris, Dow’s chairman and chief executive officer
The three-way split was likely to occur 18 to 24 months after the deal closes, which is expected in the second half of 2016, the companies said.
“This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders,” Liveris said in a statement.
The union would generate cost savings of about $3 billion in the first two years, with $1 billion in other savings possible, Dow and DuPont said.
The biggest of the three new companies by revenue would be material sciences, catering to the packaging, transportation and infrastructure industries and competing against Germany’s BASF, Honeywell and 3M. The new company’s combined 2014 revenue was about $51 billion on an adjusted basis.
The specialty products company would sell materials to the electronics and communications industries as well as to the safety and protection sectors. The combined adjusted revenue was about $13 billion in 2014.
The third business, selling seed and crop protection chemicals, generated adjusted revenue of about $19 billion.
The proposed merger puts pressure on rivals such as BASF and Bayer AG to consolidate as falling crop prices curb sales.
“The biggest impact will certainly be in the agriculture market, where the seeds and crop chemical industries are to undergo rapid consolidation,” SunTrust’s Sheehan said.
It could also prompt a renewed flurry of takeover bids for European rivals, with Syngenta AG the most likely target.
Monsanto Co may take another shot at Syngenta, according to analysts. It abandoned a $45 billion offer for the Swiss company in August.
“(The question is) how does Monsanto respond to the strategic move by two of its main competitors?” Sheehan added.
Activist investor Nelson Peltz, who has long championed breaking up stodgy conglomerates, has been pressing DuPont to separate its agriculture, nutrition and biosciences units from its building and safety materials divisions.
Breen said on CNBC that Peltz was “very supportive” of the Dow deal.
Another activist investor, Dan Loeb, has been pushing Dow to split its agri business and other specialty chemical units from its petrochemical divisions.
U.S. antitrust enforcers will not look at the deal as a simply a combination of two conglomerates but examine the many products the companies make to determine where competition will be lost.
Regulators will be especially concerned about the agricultural sector, which could see big divestitures, antitrust experts said.
In agricultural chemicals, the merged company would overtake leader BASF, while in seeds the combination of Dupont Pioneer and Dow would challenge Monsanto, said Diana Moss, president of the American Antitrust Institute.
“The (seed) market is already dominated by Monsanto. You’re almost creating duopoly in the market, and that’s a problem,” she said.
The new board would have 16 members, with each company contributing eight directors, the companies said.