Bloomberg is reporting a a probable merger between Dow Chemical Co (NYSE:DOW) and E I Du Pont De Nemours And Co (NYSE:DD) DuPont creating a combined market value of $120 billion. Once the two are combined, they plan to split into three separate companies, consisting of agricultural chemicals, specialty products and materials, like plastics.
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The companies explain that the merger will create a leader in thermoplastics, elastomers, finished parts and biopolymers, and result in the world’s largest packaging materials supplier. Mr. Breen said in the interview that the companies plan to divest only minor pieces of their businesses “but nothing that would move the needle”.
“This merger makes so much strategic sense”, said Jonas Oxgaard, an analyst with Sanford Bernstein, before the deal was officially announced.
The all-share deal will eventually lead to the merged company, initially to be called DowDuPont, being split in three. Dow chief executive Andrew Liveris will become executive chairman of the new company, DowDuPont, while DuPont’s CEO Ed Breen will be his CEO.
DuPont is cutting 10 percent of its global workforce, including employees and contractors, which is expected to cut costs by about $700 million, but there’s been no word on what that means for local employees affected by the merger.
DuPont is 213 years old, and makes different products that are used in pharmaceuticals, petro chemicals, food and construction.
Dow’s businesses in this area include Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions and Consumer Solutions. It manufacturers Styrofoam insulation products and chlorine products, used in paper, pulp and soap.
Dow also said on Friday that it planned to restructure its ownership with Dow Corning by becoming a full owner, up from a 50-50 joint venture. This is expected to take place as soon as feasible, sometime within 18-to-24 months following the closing of the merger, subject to regulatory and board approval. Because the firms are of similar value, the transaction will be a merger of equals, with shareholders of each company getting shares of the new DowDuPont. The stock of Dupont (DD) has jumped 9% to trade at $73.36, whereas Dow Chemical shown 6% growth to trade at $55.38 during the week. The company will have dual headquarters in MI and DE where the two companies are now based.
Dow Chemical shareholders will get one DowDuPont share for each Dow Chemical share held, while DuPont shareholders will get 1.282 shares in DowDuPont for each DuPont share they own.
Dow has strength in soybeans, while DuPont is strong in corn.
The merger will generate cost savings of about $3 billion in the first two years, with $1 billion in other savings possible.
Trian, which owns a major stake in DuPont and unsuccessfully pressed for board seats in a proxy fight earlier this year, said it “fully supports this transformative transaction and believes that the combination of DuPont and Dow is a great outcome for all shareholders”. It will compete with the likes of corporate titans BASF, Honeywell, and 3M. Combined pro forma 2014 revenue for specialty products was approximately $13bn. Their combined revenue in 2014 was $19 billion.
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Activist investor Nelson Peltz has been pressing DuPont to separate its agriculture, nutrition and biosciences units from its building and safety materials divisions.
