Watchdog groups are sounding the alarm after two of the oldest and largest corporations in the United States-DuPont and Dow Chemical-announced Friday plans to merge into a $130 billion giant, thereby establishing the world’s biggest seed and pesticide conglomerate.
Advertisement
“While we will no longer receive equity earnings or dividends from Dow Corning’s silicones business, we are confident that Hemlock and deployment of the new entity’s $4.8 billion will create significant value for our shareholders, including EPS accretion”, R. Tony Tripeny, Corning chief financial officer, said in the statement.
The two companies, whose research has brought the world products ranging from Ziploc bags and Saran wrap developed by Dow to DuPont’s Teflon coatings and Nylon and Kevlar fibers, will first form DowDuPont, then separate into three independent publicly traded companies focused on agriculture, material science and specialty products.
DuPont announced a companywide restructuring plan, including employee and contractor layoffs affecting about 10% of the company’s workforce, to reduce $700m in costs.
The merger calls for Dow Chemical stockholders to receive one share of the company for each share they now own, while DuPont holders would exchange each of their shares for 1.282 shares of DowDuPont. It is expected to deliver about $3 billion in cost synergies, with 100 percent of the run-rate cost synergies achieved in the first 24 months following the transaction’s closing. Dow Chemical shares were down 3 percent at $53.27.
The new board would have 16 members, with each company contributing eight directors. Dow based in Midland Michigan was founded in 1897 by Canadian-born chemist Herbert Dow to produce bleach using new technology he had developed to extract chlorine from brine.
As a chemical powerhouse, Dow and DuPont combined would be the second-largest chemical company in terms of revenue after BASF of Germany.
Excluding preferred shares, existing shareholders of Dow and DuPont will each own about 50 percent of the combined company, to be called DowDuPont.
“Our initial take is, given the commodity nature of Dow’s business and the resulting low barriers to entry, the valuation is not obviously attractive”, said Grayson Witcher, portfolio manager at Mawer Investment Management Ltd.
DuPont shares fell 5.5% at 4 p.m. trading in NY, as the company also issued downbeat comments on its expected 2016 sales growth. Additional upside of approximately $1 billion is expected from growth synergies.
The biggest of the three new companies by revenue would be a material science company, which would cater to the packaging, transportation and infrastructure industries.
Chemists at DuPont forever changed the garment industry in the late 1950s, when they invented Lycra.
On Friday, a Trian representative said, “Trian fully supports this transformative transaction and believes that the combination of DuPont and Dow is a great outcome for all shareholders”.
Breen told analysts that the two companies would fit together like “hand in glove” with little product overlap. Combined pro forma 2014 revenue for Specialty Products is about $13 billion.
Advertisement
Klein and Company, Lazard, and Morgan Stanley & Co.
