The Dow Chemical Co. and DuPont will combine in an all-stock merger of equals, according to a definitive agreement announced December 11 by the boards of directors of both companies. The merger faces a gauntlet of regulatory approval and approval by Dow and DuPont shareholders.
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The dual headquarters for DowDuPont is in Wilmington and Midland, Mich. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-free spin-offs.
The agriculture company would have combined revenue of $19 billion, the material science company $51 billion and the specialty products company $13 billion.
On top of that, there will be a different degree of risk associated to the three resulting entities, and while I’d be inclined to participate in any possible upside associated to the new agriculture unit, I’d reluctantly invest in material science and specialty products, which could deliver sub-par returns if the current business cycle doesn’t speed up.
Under the terms of the transaction, Dow shareholders will receive one share in the new company, DowDuPont, for each one of their shares, while DuPont holders will receive 1.282 shares for each of theirs.
Liveris called the deal “a game changer” for the chemical industry that would create value for both shareholders and customers, adding that it would be a “merger of equals” that would divide ownership equally and allow both firms to decide how the split into three companies will unfold.
As part of the deal, Dow said it also will acquire 100 percent of the Down Corning joint venture, which was previously split evenly between Dow and Corning, in a $4.8 billion deal.
The companies’ shareholders and the mergers should approve fusion of both the companies by second half of 2016.
The companies expect a combination would accelerate cost-cutting and see the deal resulting in $3 billion in cost synergies, to be fully realized within two years of the deal’s closing.
Dow was founded in 1897 by Canadian-born chemist Herbert Dow to produce bleach using new technology he had developed to extract chlorine from brine.
DuPont is the owner of Danisco’s probiotics, enzymes, sweeteners, colours and flavours business, along with the Solae soy brand. DuPont will give guidance for 2016 on January 27.
Liveris will be named executive chairman of the combined company, while Breen will be CEO.
Breen took over as DuPont CEO following the abrupt resignation in October of Ellen Kullman, who just a few months earlier fended off a proxy challenge by Trian Fund Management, a hedge fund led by activist investor Nelson Peltz. The complementary offerings of the two companies will provide growers across geographies with a broad portfolio of solutions and greater choice.
Talks of consolidation in the agricultural-sciences industry have heated up recently, with companies scrambling to adjust to pressure on lower prices for their commodities. It abandoned a $45 billion offer for the Swiss company in August.
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Liveris, who has thirsted for a deal with DuPont for “an bad long time”, had faced the serious prospect of a renewed fight with activist investor Dan Loeb.
