Dow, DuPont to merge in deal valuing chemical giants at $130 billion

The companies’ combined agricultural assets would result in the industry’s No. 2 in seeds and No. 3 in crop protection, according to Sanford C Bernstein & Co. analysts.

DowDuPont will be dual headquartered in Midland, Michigan and Wilmington, Delaware.

But that combination, an all-stock deal creating a business valued at 130 billion, would hold only until the new DowDuPont splits into three separate, listed companies with sharper industrial focuses: agriculture, material sciences, and specialty products.

JC: Dow is so much more concentrated on the commodities side than DuPont, but on the performance side, they share major end markets in automotive, infrastructure and consumer products that provide opportunities for synergies.

The planned agriculture company would combine the seed and crop protection businesses of DuPont and Dow.

The three new companies will be focused on agriculture, material science, and specialty products.

Dow and DuPont shareholders will each own 50% of the combined company, on a fully diluted basis, excluding preferred shares.

Dow Chemical’s head Andrew Liveris will be the executive chairman of the new company, with new DuPont CEO Ed Breen serving in that same capacity with the DowDuPont. Companies are finding it more hard to grow, they are looking for the revenue and cost synergies that could materialize from a deal like this.

The deal, which the companies expect to close in the second half of 2016, is sure to be closely scrutinised by regulators. Note: “The forward looking statements contained in this document involve risks and uncertainties that may affect Dow’s operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission (‘SEC”).

Dow also announced that it was buying the glassmaker Corning out of their 50-50 joint venture, Dow Corning. “About “$1 billion in growth synergies” are also expected to be achieved, according to officials.

In the number of deals done, 2015 isn’t even close to a record high, suggesting that this year has been marked by more megadeals than usual.

Breen took over as DuPont CEO following the abrupt resignation in October of Ellen Kullman, who just a few months earlier fended off a proxy challenge by Trian Fund Management, a hedge fund led by activist investor Nelson Peltz. “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”, commented Edward Breen, chairman and CEO of DuPont.

Secondly, Yahoo! Inc.’s (NASDAQ:YHOO) long-pending strategy by the CEO to dispose stake of 32% in Chinese ecommerce giant, Alibaba Group Holding ltd (NYSE:BABA) were suddenly overhauled by a forceful activist investor group, led by Starboard Value LP.

Talks of consolidation in the agricultural-sciences industry have heated up recently, with companies scrambling to adjust to pressure on lower prices for their commodities.

Dow Chemical and DuPont have independently invested in petrochemical research laboratories in Shanghai, employing hundreds of scientists.