Dow Chemical, DuPont reportedly in merger talks

Dow Chemical and DuPont both rose sharply following reports that the two companies were talking about a combination.

Dow Chemical Co. and DuPont are reportedly in talks to launch a $120 billion merger, people with insider knowledge revealed. Combined, the two companies would be the second-biggest chemical company in the world, in terms of revenue, after BASF of Germany, with more than $92 billion in annual sales.

The Wall Street Journal on Tuesday reported Dow and DuPont were planning to merge and then split into three companies focused on agriculture, specialty chemicals and materials.

Australian Andrew Liveris is poised to be elevated to executive chairman of a new American multinational chemical giant, if a planned merger is sealed between Dow Chemical and rival DuPont. While Dow was rocked by the financial crisis and a deal at that time that almost sunk the company, his strategy to realign the company’s products has returned the stock to near all-time highs. Benchmark U.S. crude was down 0.3 percent at $37.04 a barrel in electronic trading on the New York Mercantile Exchange, after falling 35 cents to close at $37.16 in New York on Wednesday. “We are getting a lot of accretion in Dow’s stock today, and we think there will be more going forward”.

Meanwhile, Dow Chemical has been jousting with activist investors, too.

The move would create a chemicals giant with a $130-billion market value, strengthen their position through weak demand for farm chemicals, but attracting regulatory scrutiny in major markets including China.

Talks between Dow and DuPont are at a late stage and it appeared unlikely a competitor would swoop in with a counter bid. DuPont was started by a French gunpowder maker named E.I. du Pont, who came to America in 1800 and broke ground on his first powder mills not long after. Energy companies and suppliers of raw materials, heavily sold this year, rose sharply along with the price of oil and other commodities.

While it made its name in chemicals, DuPont has made big strides on the agriculture side of its business, especially in its corn seed technology.

It’s a “game of musical chairs going on between the agchem companies”, Hassan Ahmed, an analyst at Alembic Global Advisers, said Wednesday in a Bloomberg Television interview.

Dow AgroSciences, meanwhile, had global sales of $7.3 billion in 2014.

Meanwhile, the two companies have undertaken significant cost-cutting efforts in recent years amid increased shareholder pressure to boost profits and improve margins.

In the intervening period in May, when Kullman was fending off a proxy battle from activist investor Nelson Peltz to get representation on the board, the company’s stock price fell over 25 percent, weakening her support among investors.

Meanwhile, DuPont completed a spinoff this year of its struggling performance chemicals unit into a separate company called Chemours.

“Roughly, the a year ago and a half we’ve had $4.5 trillion in mergers or acquisitions of companies and this will be one of the biggest and one of the strongest if it takes place”, Nash said.