Dow Chemical and Du-Pont, two historic giants of USA industry, will join in an all-stock merger of equals that’s the first step in a plan to create three new businesses.
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The two companies will form DowDuPont, then separate into three independent publicly traded companies focused on agriculture, material science and specialty products.
DuPont was founded in 1802, and became the foundation for one of the country’s greatest family fortunes. Both are contending with sinking commodity prices and a strengthening USA dollar that have pressured their revenue.
The companies have two of the best-known names in USA corporate history. “We believe this is the right way”.
DuPont Chief Executive Ed Breen will be CEO of DowDuPont, and Dow Chemical CEO Liveris will be executive chairman.
Following the closing of the transaction, the new company, DowDuPont, will be dual-headquartered in Midland and Wilmington, Del., where DuPont is headquartered today. The leadership and location of the three eventual companies hasn’t been decided. The DowDuPont announcement may put pressure on other companies to combine. The agriculture sector will likely receive the most scrutiny. Iowa Republican Senator Chuck Grassley said in a statement combining two titans of American business would require “serious scrutiny” from regulators.
Antitrust specialists also expect the deal to face close examination.
Also, DuPont has a strong presence in crop protection products, Wagner said, but Dow Agro has been a bit stronger recently at developing new crop protection products, such as its Enlist herbicide that started rolling out this year.
“It’s a very unique deal”, Liveris said.
DuPont and Dow shares were down on Friday after earlier this week soaring on speculation of the merger. Further reductions are likely as the combined company streamlines ahead of its planned breakup. Dow fell 3 percent and DuPont dropped 5.5 percent in an overall down day on Wall Street. “Most of our big ones we’ve talked to and they love the deal”. M&A activity in 2015 hit a record $4.6 trillion as of Monday, according to Dealogic.
Under the terms of the merger, Dow shareholders would receive one share of the new combined company for every one of their shares, while DuPont shareholders would receive 1.282 shares each.
“This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies”, Breen said.
“That always makes for quicker, easier negotiation”, Mr. Breen said. Former DuPont CEO Ellen Kullman abruptly resigned in October just a few months after successfully fending off a proxy challenge by Trian Fund Management a hedge fund led by activist investor Nelson Peltz.
DuPont’s safety and protection unit, which makes well-known brands such as Tyvek and Kevlar, is earmarked for this company as well.
The merger of Dow and DuPont continues a consolidation trend in the plastics materials market, following other major deals such as Dow buying Union Carbide and the combinations of Exxon and Mobil, and Phillips and Chevron.
After the merger, the company plans to divide into separate entities. The two companies declined to comment on reports of a possible merger.
Similarly, Dow CEO Andrew Liveris told analysts in October that there were “potential synergies in a newly consolidating agricultural market” regarding Dow AgroSciences. Currently, Dow Corning owns 80.5% of Hemlock, which has 1,000 employees.
The layoffs will generate about $650 million in separation costs and $130 million in expenses related to contractual worker terminations.
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Dow, meanwhile, said it is taking full ownership of Dow Corning, now a 50-50 joint venture between Dow and Corning. That transaction is slated to close by the first half of 2016.
