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Dow And DuPont May Merge

Massive combination between the two giants may be imminent

by Alexander H. Tullo
December 9, 2015

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Credit: Jonathan Ernst/Reuters/Newscom
Liveris.
Photo of Andrew N. Liveris
Credit: Jonathan Ernst/Reuters/Newscom
Liveris.

In what would be the most monumental combination ever in the chemical industry, DuPont and Dow Chemical are in discussions to merge, according to published reports quoting people familiar with the matter.

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Credit: DuPont
Breen.
Photo of Edward D. “Ed” Breen
Credit: DuPont
Breen.

The combination could be followed by a breakup of the firm into three companies, a seeds and agricultural chemicals firm, a specialty products company, and a materials company.

The talks, which haven’t been concluded and could still fall apart, would be structured as a merger of equals, reports say. Each firm had a market capitalization of just under $60 billion yesterday afternoon, before the talks were unveiled.

For the first nine months of the year, Dow had sales of $37.3 billion, while DuPont had $19.8 billion in sales. The combined firm could challenge BASF, the world’s largest chemical company, with $62.0 billion in revenues for the same three quarters.

Both firms have been under activist investor pressure to break up. Third Point, a hedge fund run by Daniel S. Loeb, has been pushing Dow Chemical to split up along commodity chemical and specialty chemical lines.

Nelson Peltz’s Trian Partners has been trying to get DuPont to separate its high-growth agricultural and food-related businesses from electronic materials and other industrial chemicals units. This is in addition to DuPont’s July spin-off of its performance chemicals business to form Chemours.

BIG DEAL
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Dow and DuPont overlap in agriculture and materials.
NOTE: Figures for first nine months of 2015.
SOURCES: Company data
Pie charts showing Dow Chemical’s and DuPont’s sales by business
Dow and DuPont overlap in agriculture and materials.
NOTE: Figures for first nine months of 2015.
SOURCES: Company data

A few reports also have Dow’s Chief Executive Officer Andrew N. Liveris becoming chairman of the combined firm. Edward D. Breen, who recently took over the reins of DuPont from longtime CEO Ellen J. Kullman, would be CEO. Although it is unclear at this point what their roles would be should the firm break into three different parts.

In trading early today, both firms’ stock prices spiked by more than 10%, a fantastic one-day move for companies so large and an indication that Wall Street anticipates and is receptive to a combination.

DuPont was founded in 1802 as a gunpowder maker in Wilmington, Del. Dow started out as a Midland, Mich., based bromine producer in 1897.

The two companies have evolved separately but do have areas of overlap that may make a merger intriguing. Foremost among these is agriculture, where both companies have leading seed and crop protection chemicals businesses.

In October, Liveris indicated he was exploring options for Dow AgroSciences. DuPont’s Breen, in a conference call with analysts, hinted that he was interested in conducting an agricultural deal of his own. Combined, the two companies would have the largest seed and agrochemical business.

The two firms also complement each other in polymers. DuPont is one of the world’s largest engineering polymers makers. Dow is among the world’s foremost producers of polyethylene. Both companies have large businesses in value-added materials for food packaging, specifically polymer films for multilayered packages.

Both companies are also big players in electronic materials used, for instance, in chip fabrication. And they also have growing businesses in photovoltaic materials.

“We believe a transaction would solve several structural challenges for both companies,” wrote Jefferies & Co. stock analyst Laurence Alexander in a note to investors. The deal would create a stronger agricultural business, which would be better able to compete with rivals such as Monsanto, he said. Alexander also pointed to synergies in the polymers business, where DuPont’s products would further diversify other Dow initiatives such as its new Sadara joint venture in Saudi Arabia.

The year has been one of frenzied deal-making in the chemical world. Just last month, Pfizer and Allergan agreed to merge to form a combined company worth a combined $160 billion. That deal involves a possible corporate split later on to form two separate companies: one to focus on innovative products and another on generic drugs.

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