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Canada Clears DowDuPont as Funds Turn up Heat

30.06.2017 -

Canada’s Competition Bureau has given its approval to the merger between Dow Chemical and DuPont, with conditions attached. With the green light now shining from all seven regulatory blocs, the $130 million merger is a done deal. Now the two chemical heavyweights will have to appease activist shareholders squabbling over the optimal business split.

To allay Canada’s competition concerns, DuPont has agreed to sell a significant part of its global herbicides business and R&D branch to FMC Corporation. As in the US, the sale includes DuPont’s activities in cereal crops, in particular Finesse herbicide for winter wheat, and its Rynaxypyr insecticides, but also PrecisionPac, a popular herbicide dispensing systems among Canadian farmers.

In addition, Dow will sell certain specialized plastics products, namely ethylene acrylic acid copolymers (EAA) and ionomers, which are typically used in specialized packaging applications for food, drinks and pharmaceuticals, to South Korean company, SK Global Chemical.

The Bureau said the divestments are needed to prevent a substantial lessening of competition in the development and supply of some crop protection products and specialized packaging plastics. It added that both FMC and SK Global are acceptable buyers as they are likely to compete effectively and support innovation in Canada. DuPont already has ties to FMC, while SK Global is entering new markets with the buy.

Separately, Dow and DuPont announced they have started their joint portfolio review and have appointed McKinsey & Co. to assist in their assessment. The board of the then-newly merged DowDuPont board is expected to review the results soon after the merger closes, which they still expect to happen in August.

Under the plans drawn up in late 2015, the combined group will split into three separate entities for agrochemicals, materials and specialty chemicals within a year of closing and expected spin-offs are due to take place within 18 months.

Commenting on the review plans in a guarded joint statement, Dow and DuPont sought to reassure shareholders that the planned redistribution of corporate activities is in their best interest. This is seen as an attempt  to avoid too of them many siding with activist shareholder Dan Loeb, who is now pushing a six-way split. Pressure from Loeb’s Third Point hedge fund, a Dow shareholder, and by the Trian management fund of DuPont activist investor Nelson Peltz is said to have triggered the planned fusion.

Jeff Fettig, lead director of Dow, stressed that the management teams and directors of both companies are in “regular dialog” with shareholders. They are furthermore “committed to delivering maximum, long-term shareholder value by ensuring that each of the intended companies will have clear focus, an appropriate capital structure, a distinct and compelling investment thesis, scale advantages and focused investments in innovation to better deliver superior solutions and choices for customers.”

For DuPont, lead director Alexander (Sandy) Cutler, said the Dow and DuPont leadership is “committed to maximizing the tremendous value creation potential of the merger and anticipated spins.” Cutler said the output of the review will be an immediate focus for the merged board. “If the results of our review demonstrate there is net greater long-term value creation to be realized through a change in the portfolio, it will be pursued," he said.

Alongside the agriculture company comprised of the two companies’ crop protection and seeds activities and a materials unit encompassing many of Dow’s petrochemical and plastic businesses, Loeb’s plan foresees carving out Dow’s silicone business into a standalone firm and grouping the two electronics, food additives and safety materials businesses into three separate sector-oriented entities rather than one specialty chemicals company.

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