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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.
20151209lnp3-Liveris.jpg
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.
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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
LN-dowdupontpie.jpg
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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Comments
Dr. Ray Stewart (December 9, 2015 2:17 PM)
Hell NO!!!
Miriam Goldsmith (December 9, 2015 3:16 PM)
More job losses for chemists & other scientists.
Gary (December 9, 2015 4:43 PM)
As a DuPont retiree and stock holder, I would love to know what such a merger and break-up would mean for my finances.
Nancy (December 10, 2015 8:06 AM)
As a former employee of both companies I would love to know what it would mean for my pension.
Mother (December 17, 2015 2:43 AM)
Ditto. Neither Dow or Dupont is willing to talk about the pension implications, if any. I've tried their respective pension offices, investor relations, and media relations to no avail.
Dr. J.B.Koster (December 9, 2015 6:17 PM)
When this deal comes through , then this will affect the global chemical industry.
Everything , what you can think about , is in their common portfolios.
Syngenta and Monsanto might start talking again . And Basf might need a Biosciences Chemical Company , like Genencor / DuPont. But there or not many of that size .
The " Pac Man Game " got revived in the chemical industry.
Will it be in the long run a wise decision ? Time will tell : " Que sera, sera ".
Liddie B. Hendrix (December 9, 2015 8:05 PM)
I am a retired DuPont employee. I saw this on the news early in the AM on Fox Business.I am concerned about our monthly pensions. Worked for DuPont for over 32 years in the Office. Always very proud to have had a career with DuPont.
Alex Tullo (December 9, 2015 8:21 PM)
True, Dr. Koster, this may touch off a chain reaction and BASF is a company to watch. It is smaller than the other players in ag.
Jay G. Otten (December 10, 2015 12:35 AM)
Merger of equals. I believe that was the term used with the Diamler Chrysler merger. I will believe it when I see it.
Robert Buntrock (December 14, 2015 4:23 PM)
Similar to when BP and Amoco "merged" almost 20 years ago. The joke even among management was "How to you pronounce BP Amoco" Answer: "BP, the Amoco is silent". IMO, BP has degraded 3 companies: BP, Amoco, and SOHIO.
Russ Pate (December 10, 2015 1:12 AM)
As a member of a large family of dupont retirees, one has to question how such a merger would impact the pension fund as well as our $1400/yr healthcare allowance.
Pankaj Mehta (December 10, 2015 7:46 AM)
"breakup of the firm into three companies, a seeds and agricultural chemicals firm, a specialty products company, and a materials company."

The Specialty Products Co. could be named DuPont, materials company Dow and the Ag company - "DuPont Dow Ag Co." - so it would probably end up "back to the future" from a few decades ago - before the advent of biotech / ag businesses at these companies. This is probably a tax efficient process over swapping a number of businesses.
Frank B. (December 11, 2015 12:34 AM)
I always thought this would happen, to be honest. Been paying attention to these two companies for a little over 15 years.
Susan W (December 14, 2015 7:22 PM)
My husband is a Dupont retiree. Worked for the company 36 years. He saw it in the paper and showed it to me. He was quite upset as most retirees might be. Not sure what will happen to his pension. I hope that they honor them. Time will tell.
Dr. Virgil E. Matthews (December 15, 2015 1:34 AM)
Worked for Union Carbide for 32 years before Dow took them over.Get my pension through Dow from Union Carbide pension fund I wonder if merger will affect my pension.
Gerry (December 15, 2015 8:13 AM)
Any news on impact to Union Carbide retirees? I'm one of them.
Don R. (December 17, 2015 10:25 AM)
You can bet this will not be good for retirees and the $1400/yr healthcare allowance. I had Kaiser health Care of Southern California and it didn't cost me anything except for a $1.00 per prescription. The year after I retired we were forced to go with the DuPont managed care plan with monthly premiums, deductibles, and co-pays. I retired early (Plant closure)and still had two children on my plan. One year it cost me out of pocket 50% of my DuPont retirement under the managed care plan. So, don't be surprised.
Melody Bomgardner (December 30, 2015 12:47 PM)
Hello! I work with Alex T. at C&EN and hope to find out about any possible changes that might come about for DowDuPont workers and retirees with regard to pensions and retiree health care benefits. While we await more official details from the company, feel free to e-mail me at m_bomgardner@acs.org with any questions or thoughts you have on this topic. I'll be looking to interview experts on these topics and your question could help me.
anonymous (January 3, 2016 7:31 PM)
Melody - you should post this request at chemjobber and some of the other chemistry blogs.
Dale H. Henderson (February 8, 2016 3:42 PM)
I could be mistaken, but aren't most of the duPont pension dollars held by an insurance company that handles annuities? I thought that duPont was pushing all of the pension to an insurance managed position.

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