The possible merger between DuPont Co. and Dow Chemical Co. would create a chemical-industry colossus spanning industrial materials and agriculture, prompting what would likely be a detailed and lengthy review by government antitrust enforcers.
Advertisement
The S&P materials sector was the brightest spot with a 3 percent increase driven by reports that Dow Chemical, whose shares were up 11.7 percent, and DuPont, up 11.1 percent were in talks to merge. Following this deal, DuPont’s CEO, Edward Breen, who was recently promoted to a permanent, full-time CEO-ship from his interim position, will continue to lead the company, while Dow’s CEO, Andrew Liveris, will take the backseat as chairman.
Based on the market values of Dow and DuPont, a merger would probably rank among the five largest deals announced this year, according to data compiled by Bloomberg.
Merger speculation is placing a floor under the Dow Jones average.
The merger would be one of the biggest in a year marked by mega deals.
DuPont’s shares surged after the Wall Street Journal reported the company was in advanced merger talks with Dow Chemical, helping to partially offset negative sentiment. Dow has produced a slew of plastics and agricultural chemicals, while DuPont claims such innovations as Kevlar, Tyvek and Teflon. Both companies have long histories as specialty chemical companies. And, if the botched Monsanto-Syngenta deals tells investors anything, it’s that when these deals fall apart, it can have a big impact on the stock price, with Monsanto and Syngenta down down double-digits in the immediate aftermath of walking away from that bid. Combined, the companies employ more than 100,000 people.
DuPont and its financial partners may have less to gain from a merger than Dow, analyst Levenson concluded: “DuPont, for all its management turmoil and activist pressure, is a stronger credit than Dow, but any potential lift for Dow bondholders could be wiped out when the company is split up”.
Last month the company announced another major change that involved plastics: a plan to consolidate two of its plastics-related units into a single business.
Trian ran a lengthy proxy fight that DuPont defeated, but DuPont’s stock price continued to sag and is now down almost 10 percent for the year. Yahoo said it will instead explore breaking off the rest of its business into a new company.
Advertisement
Investors bailed out of TCP International (NYSE:TCPI), however, as Lundin Law launched a class action lawsuit against the company, which last month saw its shares slump after an audit committee investigation into its accounts. Best known as a turnaround expert, Breen was the CEO of Tyco (TYC.N) between 2002 and 2012 and split Tyco into six companies, a sprawling conglomerate beset by scandal and strategic flipflops. Dow settled a lawsuit with Wood earlier this year, and both parties agreed not to discuss the case. And a year ago it said it would separate more of its commodity-based chemicals business, looking to focus on higher-end specialty concoctions, in a move to create more stable earnings. The stock added 58 points to Dow’s 188-point rise.
