Dow Chemicals, DuPont in $178b merger

Questions swirled about possible layoffs in MI after Dow Chemical Co. said Friday it would combine with its rival DuPont Co.in a $130 billion deal and subsequently spin off tax-free into three independent, publicly traded companies.

Pictured are Edward D. Breen, chairman and chief executive officer of DuPont and Andrew N. Liveris, Dow’s chairman and chief executive officer. The new company, called DowDuPont, will have dual headquarters in Midland, Mich., and Wilmington, Del.

However, the aim is, 18-24 months after the merger is completed, to separate out the combined Dow-DuPont businesses into three spin-offs – in agriculture, materials science, and speciality products.

Material Science: “A pure-play industrial leader, consisting of DuPont’s Performance Materials segment, as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions… operating segments”.

The companies, which made a combined $83 billion in global revenue last year, said the megadeal would reveal $3 billion in “cost synergies” – overlapping expenses the companies can cut within the merger’s first two years. The new commodity chemicals segment – described by Dow and DuPont as a “material science company” – had revenues of about $US51 billion and will be overseen by Liveris.

Shareholders of Dow Chemical will get 1 share in the new DowDuPont for each Dow share, while DuPont shareholders will get 1.282 shares for each DuPont share.

“As of now, Frost & Sullivan expects the merger will face regulatory hurdles across different regions as both companies have a huge global footprint”.

Dow has strength in soybeans, while DuPont is strong in corn. Like the Dow-DuPont deal, that one involves a possible corporate split later on to form separate companies, one focused on innovative products and the other on generic drugs.

Liveris would become executive chairman of the newly formed DowDuPont board, and Breen would become CEO of the new DowDuPont.

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

They said the overall deal will create about $3 billion in initial synergies and savings, with the most duplication occurring in agriculture. Dow and DuPont shareholders will own about 50 per cent, respectively, of the combined company.

DuPont expects to record a pretax charge of about $US780 million related to its restructuring plan, with approximately $US650 million of employee separation costs and about $US130 million of asset-related charges and contract terminations. Combined pro forma 2014 revenue for Specialty Products is about $13 billion.

Mario Gabelli, the founder and chief executive of GAMCO Investors and the best paid CEO on Wall Street, called it “Financial Engineering 201” in a tweet on Friday morning.

The agriculture company, focusing on seeds and chemicals, would have a combined adjusted revenue of $19 billion, overtaking BASF as the leader in agrochemicals.

The new chemical giant would have a new name, DowDuPont, where shareholders of each company would get specified shares.

Elsewhere on the Dow blue-chips roster, Goldman Sachs sank 2.5 percent and Nike 2.1 percent.