DuPont and Dow merger 'a game changer'

The Dow Chemical Company and DuPont have announced that they are to merge. The news follows days of speculation on the future of the two chemical giants.

The new company, which will be called DowDuPont, will split into three independent, publicly traded companies in the areas of agriculture, materials science and speciality products. 

Upon closing of the transaction, the combined company would have a combined market capitalisation of approximately $130 billion at announcement.

The merger transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals, and approval by both Dow and DuPont shareholders. The subsequent separation of DowDuPont, which the companies intend to pursue, would be expected to occur 18-24 months following the closing of the merger.

"This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders," said Andrew Liveris, Dow's chairman and chief executive officer. 

"Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities – requiring each company to exercise foresight, agility and focus on execution. This transaction is a major accelerator in Dow's ongoing transformation, and through this we are creating significant value and three powerful new companies. This merger of equals significantly enhances the growth profile for both companies, while driving value for all of our shareholders and our customers."

Commenting, Edward Breen, chairman and chief executive officer of DuPont, added: “This is an extraordinary opportunity to deliver long-term, sustainable shareholder value through the combination of two highly complementary global leaders and the creation of three strong, focused, industry-leading businesses. Each of these businesses will be able to allocate capital more effectively, apply its powerful innovation more productively, and extend its value-added products and solutions to more customers worldwide.

"For DuPont, this is a definitive leap forward on our path to higher growth and higher value. This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies. Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each business will be a leader in attractive segments where global challenges are driving demand for these businesses' distinctive offerings."

Speaking on the possibility of a merger, Deepak Karthikeyan, industry manager, chemicals, materials & foods practice, Frost & Sullivan, said: 

“Similar to several acquisitions, spin offs and partnerships that we have witnessed in the chemical space in the last two years, it is quite understandable that the discussion around a possible Dow-DuPont merger and the subsequent spin-off of separate business entities is happening right now. The need of the hour for chemical companies is to have focused businesses and not exactly to be a larger entity. Both companies have been insulating their specialty markets from exposure in commodities by offloading commodity assets as recently as this year.  Coming back to the merger, the cost advantages that can be achieved in the agro business will be significant for the combined entity. Moreover, it will also be beneficial to use the strong feedstock operations of Dow and the specialty focus of both companies in such a low oil price scenario. Having said that, the synergies that the entities can immediately tap across the specialty portfolios of the companies are not as much as expected. The combined agro entity will surely become a formidable competition to the likes of companies like Monsanto, but the business and product overlap across their specialty businesses are very few. For instance, electronic and display materials is an area where the companies can potentially experience cost benefits and increased market penetration, while other markets such as safety, where Dow is not active, will not see much change.  Similarly, at present both companies focus on areas such as polymers, elastomers, composites and photovoltaic materials, which can prove to be a game changer in those industries. As of now, Frost & Sullivan expects the merger will face regulatory hurdles across different regions as both companies have a huge global footprint. However, if the merger does go through, it is going to be a big challenge for the non-agro business entities to unlock synergistic value in the short term due to the mere size of the companies themselves and the number of varied industries they focus on.” 

Upon completion of the transaction, Liveris, president, chairman and CEO of Dow, will become executive chairman of the newly formed DowDuPont board of Ddrectors and Breen, chair and CEO of DuPont, will become chief executive officer of DowDuPont. In these roles, both Liveris and Breen will report to the board of directors.