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Introducing DowDuPont

Megafirm: A $130 billion behemoth is formed, only to split into three firms after two years

by Alexander H. Tullo
December 16, 2015 | A version of this story appeared in Volume 93, Issue 49

Dow Chemical and DuPont, the two best-known names in the U.S. chemical industry, with 331 years of history between them, are joining in the largest-ever chemical merger.

The new company, DowDuPont, will be worth $130 billion on the basis of the current stock prices of the two firms. It will have annual sales of about $83 billion and pretax profits of $15 billion.

Dow’s chief executive officer, Andrew N. Liveris, will serve as executive chairman of DowDuPont. Edward Breen, now DuPont’s CEO, will become the new company’s CEO. The transaction will be a merger of equals, with shareholders of each company getting shares of the new DowDuPont. The combined firm will have dual headquarters in Midland, Mich., and Wilmington, Del.

Liveris and Breen, however, plan for DowDuPont to be a temporary entity. It will soon split into three separate firms—one focused on agrochemicals and seeds, another on materials, and a third on specialty chemicals. Executives hope to create these firms within two years of completing the Dow-DuPont merger next year.

“This transaction represents a tectonic shift in an industry that has been evolving over the last many years, and it is a culmination of a vision we’ve had for more than a decade to bring together these powerful innovation-driven agriculture and material science leaders,” Liveris said in a conference call on Dec. 11.

The merger wasn’t the only announcement the companies made that day. Dow disclosed a $4.8 billion buyout of Corning’s stake in the Dow Corning silicones joint venture, and DuPont unveiled a 10% reduction in its workforce, meant to save $700 million annually.

The Breakup
A table showing the 2014 sales of Dow and DuPont in specialty products, Materials science, and agriculture.
Dow Chemical and DuPont will both make substantial contributions to the three planned companies.
NOTE: Dollar figures are sales numbers based on 2014 information. OLED = organic light-emitting diode.
SOURCES: Company documents, C&EN

DowDuPont plans additional cost cutting once it is formed. Executives estimate the combined firm will achieve $3 billion in savings as well as $1 billion in growth synergies.

About 10% of the cost cutting will come from R&D, mostly in agriculture, where executives see redundancies in work on seed traits. Breen told analysts he is reluctant to cut R&D deeply. “What we don’t want to do is affect the future growth of these businesses,” he said.

Of the three companies that will spin out of DowDuPont, the largest will be the materials science firm, with an estimated $51 billion in sales. It will combine Dow’s plastics business, a leader in polyethylene and elastomers, with DuPont’s materials unit, which makes engineering polymers and ethylene copolymers. It could also be the future home of Dow Corning’s silicones business.

The combined agriculture firm will have roughly $19 billion in sales, evenly balanced between seeds and crop protection chemicals. It will be the sales leader in the sector, ahead of rival Monsanto.

The specialty products firm, with about $13 billion in projected sales, will get electronics materials businesses from each firm. It will also get DuPont businesses such as industrial biosciences, health and nutrition, and safety and protection.

Wall Street analysts say the success of DowDuPont will depend on how well the companies are able to cut costs and cross-pollinate their vast operations. “In our view, synergies could be a complicated task,” notes John Roberts, a stock analyst with UBS. However, he says, the materials science firm will add DuPont polymer businesses while preserving the integration that existed in the old Dow.

Although the two companies share some markets, Dow and DuPont executives say they don’t expect regulators will force them to make many divestitures before approving the merger. “We do go into the same markets in different spots, but we don’t go head-to-head,” Dow Chief Operating Officer James R. Fitterling tells C&EN.

Nelson Peltz, an activist investor who has been prodding DuPont to break up, appears to be in favor of the merger and reportedly played a role in the discussions. Daniel S. Loeb, the activist investor who has been intent on breaking up Dow, hasn’t publicly taken a position on the deal. But two Dow directors he selected have voted in favor of the move.


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