Dow, DuPont Confirm Plans to Merge — and Then Split

DuPont and The Dow Chemical Company have agreed to an all-stock merger that will bring together two of the largest chemical industry titans in the United States. While the combined DowDuPont’s auto division will account for only a small fraction of the company’s business, the merger’s ripple effects run deeper into the second and third tiers of the supply chain, which often use materials from both companies in various auto parts and components.

For Copeland, the idea of DuPont’s clout ever waning first took hold after college when he went to work for the company at a titanium-dioxide plant on the Gulf Coast of Mississippi. Dow and DuPont shareholders will each own about 50 per cent of DowDuPont, excluding preferred shares.

Liveris will be named executive chairman of the combined company while DuPont’s chairman and CEO, Edward Breen, will be CEO.

The specialty products company would combine DuPont’s nutrition and health, industrial biosciences, safety and protection, and electronics and communications segments with Dow’s electronic materials business. As well as the $3 billion of cost savings, the companies said the deal will create additional earnings of about $1 billion.

Getting all their big news out at once, Dow announced a $4.8 billion buyout of Corning’s stake in the Dow Corning silicones joint venture, and DuPont unveiled a 10% reduction in its workforce, a move meant to save $700 million in annual costs. This company’s combined 2014 revenue was about $51 billion on an adjusted basis. And it was also a reminder of corporate executives’ zeal to find ways to cut costs and seek favorable conditions in the globalized economy.

The agriculture company would unite DuPont’s and Dow’s seed and crop protection businesses. Dow products include PE resins and its broad portfolio of thermoplastic elastomers, while DuPont’s include nylon, PBT, acetal, thermoplastic elastomers, and biopolymers.

While officials at the companies’ pesticide competitors, including Sygenta, Monsanto, and FMC, have described potential merger talks as near-universal due to falling global demand, Liveris told investors that DuPont and Dow directors have been in talks since last winter, when Breen’s predecessor, Ellen Kullman, was in charge. Mr. Liveris said planned cost reductions wouldn’t “hobble” the companies’ research capabilities. Key Private Bank analyst Rob Plaza said that both the companies felt the need to merge owing to lack of growth opportunities.

Dow and DuPont shares fell yesterday after soaring this week following reports of the talks. “If it closes after the DuPont deal it comes into the material sciences”, Fitterling said.

In a note to clients, Credit Suisse stock analyst John P. McNulty said he doesn’t see much overlap between the two firms, except perhaps in agriculture. “It’s a merge and spin model where we’ve already pre-determined the businesses coming out, so this is not a scale issue in the traditional regulator/Department of Justice sense”.

Klein and Company, Lazard, and Morgan Stanley & Co. Combined pro forma 2014 revenue for Specialty Products is approximately $13 billion.

However, the new companies’ focus on areas such as polymers, elastomers, composites and photovoltaic materials “can prove to be a game changer in those industries”, Karthikeyan says.

Evercore and Goldman, Sachs & Co. are serving as DuPont’s financial advisors for the transaction, with Skadden, Arps, Slate, Meagher & Flom LLP acting as its legal advisor.