DuPont, Dow Chemical seek merger, then three-way split

USA chemical giants DuPont and Dow Chemical Co have agreed to merge in an all-stock deal valuing the combined company at $US130 billion ($A178 billion), with plans to eventually split into three.

The proposed agriculture business would unite DuPont’s and Dow’s seed and crop protection businesses.

The deal, which the companies expect to close in the second half of 2016, is sure to be closely scrutinized by regulators.

If the merger between The Dow Chemical Co. and DuPont Co. moves forward, the intent is to then split into three companies.

Hanging over both companies had been bruising fights with prominent activist investors. The deal is one of the top 20 largest mergers.

The companies have two of the best-known names in US corporate history. They also emphasized that the combination and restructuring would avoid taxes, adding to the benefit for shareholders. “We believe this is the right way”.

Andrew N. Liveris will become Executive Chairman, Edward D. Breen will be named CEO. The companies said they would maintain dual headquarters in Midland, Mich., and Wilmington, Del. The leadership and location of the three eventual companies hasn’t been decided.

In recent years, however, both companies have focused on agriculture, as global demand for increased food supplies has driven sales of genetically engineered seeds, fertilizer, herbicides and pesticides.

“Our initial take is, given the commodity nature of Dow’s business and the resulting low barriers to entry, the valuation is not obviously attractive”, said Grayson Witcher, portfolio manager at Mawer Investment Management Ltd. Other big players who could figure in deals include Germany’s BASF and Bayer AG.

The merger however triggered worries that it will give the company oligopolistic powers in areas like seeds for farmers and certain chemicals.

Despite its size and complexity, the deal could overcome antitrust concerns with modest divestitures, according to analysts who track the companies. Further reductions are likely as the combined company streamlines ahead of its planned breakup.

DuPont shares, part of the Dow Jones industrial average, fell 5.1 percent at $70.73, while Dow slid 3.4 percent at $53.05. Dow shares dropped 2%.

DuPont and Dow shares were down on Friday after earlier this week soaring on speculation of the merger. As a result, they restructured their product portfolios and divested many businesses over the last few years.

The companies jointly made the announcement Friday morning and said it will be a merger of equals.

The all-stock merger of the two companies is valued at $130 billion.

Breen said on CNBC that Peltz was “very supportive” of the Dow deal. “The strategic nature of what we could pull off is incredible”.

DowDuPont’s board is to have 16 members, half from each side. Breen and Liveris will serve on the board along with two co-lead directors.

For Liveris at Dow, “this has been a long journey”, he told analysts. 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.

Dow Chemical has produced plastics, chemicals, hydrocarbons, and agrochemicals for 118 years.

DuPont expects 2016 sales growth to be “challenging”, due to economic weakness in agriculture and emerging markets. They will own about 50 percent of the new enterprise.