Questions swirled about possible layoffs in MI after Dow Chemical Co. said Friday it would combine with its rival DuPont Co.in a $130 billion deal and subsequently spin off tax-free into three independent, publicly traded companies.
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Under the deal’s terms, shareholders of Dow Chemical will get one share in the new company called DowDuPont for each Dow share, while DuPont shareholders will get 1.282 shares for each DuPont share. Most of these savings, which are above the already-announced $1.7 billion worth of cost reductions announced by the two companies, would come from the agriculture and material sciences businesses. The merger one of the biggest of the year will allow Dow and DuPont to rejig assets based on the diverging fortunes of their businesses that make agriculture chemicals and plastics. Dow products include PE resins and its broad portfolio of thermoplastic elastomers, while DuPont’s include nylon, PBT, acetal, thermoplastic elastomers, and biopolymers.
DuPont Chief Executive Ed Breen will be CEO of the new company, while Dow Chemical CEO Andrew Liveris will be executive chairman.
DuPont chairman and CEO Edward Breen said the “industrial logic” behind the deal was compelling.
In morning trading, shares of E.I. du Pont de Nemours and Co. fell $4.12, or 5.8 percent, to $70.45 while Dow Chemical Co. shares lost $2.41, or 4.4 percent, to $52.50. Google was down 1.41 percent to 738.87 with Yahoo dropping 4.97 percent to 32.91 and Facebook was down 3.13 percent to 102.12.
‘This merger makes so much strategic sense, ‘ said Jonas Oxgaard, an analyst with Sanford Bernstein, before the deal was officially announced.
“I have also coveted the transaction”, said Breen. Last month, Syngenta rejected a $42 billion offer from state-owned China National Chemical Corp.
The combined firm will have dual headquarters in Midland, Mich., and Wilmington, Del., where Dow and DuPont, respectively, are now based. The deal is expected to close by year’s end 2016, with the planned separations expected to occur 18 months to 24 months following the close.
“I’ll be listening to Iowa farmers and consumers about any concerns they may have with this proposal, and the Judiciary Committee will be exercising its appropriate oversight function”, Grassley said.
“These are highly complementary businesses”.
DowDuPont plans additional cost cutting once it is formed.
The companies said the proposed merger of equals, approved unanimously by their respective directors, will result in cost synergies of about $3bn that are projected to create approximately $30bn of market value. DuPont said 10 percent of its global work force would be affected. DuPont was founded in 1802 in Delaware.
Dow said it is taking full ownership of Dow Corning, now a 50-50 joint venture between Dow and Corning. “About “$1 billion in growth synergies” are also expected to be achieved, according to officials.
Dow and DuPont shareholders will each own about 50 percent of DowDuPont on a fully diluted basis, excluding preferred shares.
The agrichemical company is expected to generate $19 billion through the sale of seeds and chemical insecticides to the agricultural industry.
The biggest of the three new companies by revenue would be material sciences, catering to the packaging, transportation and infrastructure industries.
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The agriculture business – which will combine a DuPont unit best known for its Pioneer seeds with a Dow Chemical division more weighted towards agrichemicals – will rank as the world leader in the sector, with sales of $19bn. Combined pro forma 2014 revenue for specialty products was approximately $13bn.
