But Nomura analyst Aleksey Yefremov thinks that rivals could be in benefit when Dow and DuPont integrate because both the companies have different cultures, with DuPont more in research and growth-driven and Dow focuses on tight cost controls and modest innovation.
Advertisement
Job reductions are expected to result from the merger.
The New York investment firm said it was approached by the companies to “assist in negotiations”, including on structure and governance of the combined entity and the planned spinoffs. The combined adjusted revenue of that business was about $13 billion in 2014. DowDuPont will claim both Dow’s Midland, Mich., base and DuPont’s Wilmington, Del., location as dual headquarters, and create a 16-person board with eight directors coming from each side. By 2008, the ag unit was the company’s largest business segment, and it has been a perennial earnings leader in recent years.
If the merger between The Dow Chemical Co. and DuPont Co. moves forward, the intent is to then split into three companies. Dow and DuPont shareholders will own about 50 percent, respectively, of the combined company. The new company’s combined 2014 revenue was about $51 billion on an adjusted basis.
On Dec. 11, Dow and DuPont announced an all-stock merger that will create a new $130 billion company called DowDuPont. Dow avoided a proxy fight a year ago by adding four independent directors, giving board seats to two Loeb nominees. It will compete with the likes of corporate titans BASF, Honeywell, and 3M.
DuPont Chief Executive Ed Breen will be CEO of the new company, while Dow Chemical CEO Andrew Liveris will be executive chairman. “To the extent that they are happy with DuPont now, the employees, the business decisions made at DuPont Pioneer, could only probably improve to better focus on farmers as customers”, King said.
The speciality products company would sell materials to the electronics and communications industries as well as to the safety and protection sectors. The companies did not mention layoffs in their announcement, but DuPont, in a separate statement, said it expected to record a charge before taxes of $780 million, consisting of roughly $650 million in employee separation costs.
But the two companies have struggled recently with weak agriculture sales as falling crop prices have put pressure on suppliers of seeds and pesticides while fueling merger discussions within the industry. The companies say the deal would save them at least $3 billion over the first two years of the merger.
DuPont’s ag business employs more than 12,000 workers, while Dow’s employs about 9,000.
It is considered that U.S. antitrust enforcers will look this merger more than a combination of two conglomerates and check where competition will be lost.
Under the terms of the transaction, Dow shareholders will receive a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share.
Dow Chemical Co. will purchase Corning Inc.’s stake to become full owner of Dow Corning Corp., a 72-year-old joint venture that makes silicones used in tires. When an analyst pointed out during the conference call that the cuts appeared low relative to the combined firm’s expected $3.6 billion in annual R&D spending, Breen remarked, “You don’t want to affect the future growth of these businesses”. 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 state is committed to supporting those affected by DuPont’s cost cutting in DE”.
Advertisement
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.
