Dow, DuPont create $130 billion global chemicals giant

Dow Chemical and DuPont Co., two historic giants of US industry, said Friday they will merge in a deal that will combine products from both Dow and DuPont in the areas of agriculture, commodities chemicals and specialty chemicals.

This merger, which is one of the biggest for this year, would give DuPont and Dow the ability to rejig assets based up the diverging of fortunes.

The “deal of three centuries”, as Wells Fargo analyst Frank Mitsch dubbed it, will combine two of the biggest and oldest USA chemical producers in a prelude to a split into three publicly traded businesses, focusing on agriculture, materials and speciality products.

Nonetheless, the announcement – which will see Dow shareholders take over 52% of the combined company, and DuPont investors 48% – failed to support the companies’ shares, which had already risen in anticipation of the tie-up.

Each company would stand on its own, but benefit from savings gained from being part of the larger entity, said Jim Fitterling, vice chairman and chief operating officer of Dow Chemical.

“This transaction represents a tectonic shift in an industry that has been evolving in the last many years, and it is a culmination of a vision we’ve had for more than a decade to bring together these powerful innovation-driven ag and material science leaders”, Liveris said in a conference call with investors this morning.

Dow Chemical shareholders will get one DowDuPont share for each Dow Chemical share held, while DuPont shareholders will get 1.282 shares in DowDuPont for each DuPont share they own.

DuPont’s safety and protection unit, which makes well-known brands such as Tyvek and Kevlar, is earmarked for this company as well. The company, dubbed DowDuPont, will have dual headquarters in Midland, Mich., and Wilmington, Del. In conjunction with the proposed merger, which is subject to regulatory approval, both companies are taking separate restructuring steps.

The US chemicals conglomerates on Friday revealed details of a merger, rumoured earlier this week, which will see the group initially combine into DowDuPont- a group with revenues of some $84bn a year, at 2014 values, and earnings before interest, tax, depreciation and amortisation of $15bn. The merger puts further pressure on rivals such as Germany’s BASF SE and Bayer AG to consolidate as falling crop prices curb sales.

The new board would have 16 members, with each company contributing eight directors, the companies said. It abandoned a $45 billion offer for the Swiss company in August.

The layoffs will generate about $650 million in separation costs and $130 million in expenses related to contractual worker terminations.

Dow brings about $7 billion in net sales to the company, while DuPont brings $11 billion. The companies also say their businesses pair well in automotive applications, with Dow specializing in materials for auto interiors and DuPont proficient in plastics for under-the-hood applications.

The companies hope to complete the deal in the second half of next year, and then pursue the three-way split-up of the new company in the following 18 to 24 months.

But Liveris and other executives told the analysts that the companies’ product lines, including those in agriculture, did not have substantial overlap and that the firms did not expect major antitrust problems.

Dow Chemical Co. has signed definitive agreements to restructure the ownership of Dow Corning Corp., its silicone joint venture with Corning Inc.

“These are highly complementary businesses”. DuPont was founded in 1802 in Delaware.

Peltz has called for DuPont’s agriculture, nutrition and health, and industrial biosciences units to be combined into a single company, separate from the more cyclical businesses of performance materials, safety and protection, and electronics and communication. Their combined revenue in 2014 was $19 billion.

Given the proposed new company’s size, the deal also is expected to receive antitrust scrutiny.