Dow and DuPont Confirm Merger Plans
Three days after rumors surfaced of a possible merger between Dow and DuPont, the US chemical giants confirmed the all-stock deal, which they said would create a new entity named DowDuPont with a market capitalization of $130 billion.
The transaction, subject to approval by cartel authorities in a number of countries, is planned to be completed in the first half of 2016. It would create the world’s largest producer of seeds and industrial chemicals as well as the third largest in crop protectants.
As expected, Dow CEO Andrew Liveris has been designated as executive chairman of the merged group with new DuPont chief Ed Breen taking the job of CEO. The merged DowDuPont would have two headquarters – Dow’s home base of Midland, Michigan, and DuPont’s Wilmington, Delaware, base.
Terms of the merger foresee Dow shareholders receiving one share in DowDuPont for each of their Dow shares and DuPont shareholders receiving 1.282 shares for each of their DuPont shares. The board of directors of the new entity is expected to have 16 members – eight each from the currently separate boards.
Dow and DuPont forecast that combining their activities would generate $3 billion in synergies, with additional $1 billion in synergies to be created by growth.
Initially, the combined group would have three divisions, Agriculture, Material Science and Specialty Chemicals. Within 18-24 months, all three would be carved out in individual tax-free spin-offs.
Of the three carve-outs, the MaterialSciences company, composed of Dow’s bulk products and DuPont’s Performance Materials division, including plastics and elastomers activities, would be the biggest, with pro forma annual sales of $51 billion based on 2014 figures. Following at some distance, Agriculture would have sales of $18 billion and Specialty Materials with sales of $12 billion from activities in health & nutrition as well as electronic materials, the smallest.
Though at the outset the Agriculture unit would be the market leader, attention has been focused on the divestments that could be mandated by anti-trust authorities. While some have suggested that the entire world order of agriculture chemicals could be turned on its head, just as the failed takeover of Syngenta was thought likely to do, the two US players said their businesses have scant overlap, and any resulting asset sales would be minor.
Dow is the bigger player in conventional agrochemicals, while DuPont – which has a joint venture with GMO specialist Pioneer – is bigger in seeds, commanding 35% of the global corn seed market. The combined seeds business could threaten that of current clear leader Monsanto, analysts said.
One theory currently making the rounds is that Dow’s seeds business could be put on the market. If this does not happen, rivals such as BASF and Bayer could be expected to seek acquisitions to top up their respective competitive positions. Neither, however, is seen as likely to make a grab for Syngenta, as that would require too many divestments.
Even before the Dow-DuPont deal appeared on the market’s radar, Monsanto was mooted to be planning a fresh bid for the Swiss player, world’s largest producer of crop protection chemicals, and Syngenta chairman Michel Demaré recently warned that the agricultural chemicals market would look “quite different” in six months.
The Swiss group is currently being pursued by ChemChina, a relatively small player, but some of Syngenta’s shareholders are thought to be still pushing for a deal with Monsanto. among them Folke Rauscher, a Swiss-based investor relations executive and Syngenta shareholder, who was instrumental in forming a shareholder grouping to pursue a deal.
Tritan Management Fund, the investment vehicle of DuPont’s activist shareholder, Nelson Peltz reportedly applauded the merger plans, which Dow CEO Andrew Liveris is credited with initiating, as they closely match the scenario he had long envisaged for DuPont.
Dow’s activist shareholder, Daniel Loeb and his Third Point hedge fund, had not commented at press time. A standstill agreement between Third Point and Dow, in which the fund was not allowed to criticize the chemical producer or buy any of its stock, expires today.