Dow Chemical Co and DuPont have agreed to combine in an all-stock merger valued at $130 billion, creating a market leader that will then be split into three publicly-traded businesses covering agriculture, material sciences and specialty products. The three companies would be a global agriculture company that would include DuPont Pioneer and Dow AgroSciences LLC, a specialty products company that would include DuPont Nutrition & Health, and a global material science company.
In the years since, the two companies expanded into a wide range of specialty and commodity chemical operations resulting in a variety of iconic products, from the Ziploc sandwich bags and Saran wrap developed by Dow to Dupont's Teflon coatings and Kevlar body armor. The deal, announced on Friday, will face intense regulatory scrutiny, analysts said, especially over combining their agricultural businesses, which sell seeds and crop protection chemicals, including insecticides and pesticides.
In a statement Friday, DuPont said the transaction simplifies the company's structure because it will operate fewer but larger business units rather than several smaller segments.
"Overall, this transaction represents a tectonic shift in an industry that has been evolving over the last many years", said Dow Chairman and CEO Andrew Liveris, calling the merger a seminal event for employees and customers of the two companies, which have a combined workforce of more than 110,000.
Dow Chemical CEO Andrew Liveris would be the executive chairman of DowDupont, and current Dupont CEO Edward Breen would be the chairman and CEO.
This merger, which is one of the biggest for this year, would give DuPont and Dow the ability to rejig assets based up the diverging of fortunes.
Dow is 118 years old and makes chemicals, plastics, agrochemicals and hydrocarbons.
Dow said it would take full ownership of Dow Corning Corp., which it jointly owns with Corning Inc.
The companies said the split would "occur as soon as feasible" and would likely happen 18-24 months after the deal closes which is expected in the second half of 2016.
It still seems unclear what the exact impact will be on the packaging industry, but it appears the intention is to eventually separate the merged company into three separate entities with a different focus. Major competitors would be Germany's BASF, Honeywell and 3M.
Most of these savings, which are above the already-announced $1.7 billion worth of cost reductions announced by the two companies, would come from the agriculture and material sciences businesses.
It could also prompt a renewed flurry of takeover bids for European rivals, with Syngenta AG the most likely target.
The materials company will fold in the automotive units of both Dow and DuPont, in addition to their performance-materials divisions and other units, to create a $51 billion-a-year company.
James Sheehan, a SunTrust Robinson Humphrey analyst, said: "They need to merge first in order for the subsequent spin-offs to qualify as tax-free transactions in the United States". It will be the sales leader in the sector, ahead of rivals Monsanto and Syngenta. It abandoned a $45 billion offer for the Swiss company in August.
It is considered that U.S. antitrust enforcers will look this merger more than a combination of two conglomerates and check where competition will be lost.
"DuPont has always been a great partner with our state, and we expect the lines of communication to remain open if anything significant were to materialize", said Kelly Bachman, a spokeswoman for Delaware Gov. Jack Markell. Diana Moss, president of the American Antitrust Institute, said there could be problems in dominance of seed sales. The two companies will choose those directors over the next four to five months, and will likely hire new directors to serve on advisory boards set up to help plan the three eventual spinoffs. Evercore and Goldman, Sachs are advising DuPont. Dow Chemical's stock fell $1.70 a share, or 3.1%, to $53.21.
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