DuPont and Dow Confirm “Merger of Equals”

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

Following the closing of the transaction, DowDuPont will be dual headquartered in Midland, Michigan and Wilmington, Delaware.

“The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-free spin-offs”.

The three companies? Agriculture (seed and crop protection), material science (including DuPont’s Performance Materials segment) and specialty products (including DuPont’s Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications businesses).

The merger, one of the biggest of the year, will allow Dow and DuPont to rejig assets based on the diverging fortunes of their businesses that make agriculture chemicals and plastics. One would be an agricultural company with an estimated revenue of $19 billion, while the other two would concentrate on material science with $51 billion in revenue and specialty products with $13 billion in revenue. Dow Chemical will become 100% owner of what previously had been a 50-50 joint venture, the company said in a statement. The company also announced in May that it was cutting between 1500 and 1750 jobs or about 3 percent of its global workforce as it prepared to close a 5 billion deal to sell much of its chlorine operations to Olin Corp.

Once the union is finished, expected in the second half of 2016, stockholders of both companies will hold an equal share in the new entity, which will then be divided into two.

Dow brings about $7 billion in net sales to the company, while DuPont brings $11 billion. The merger is the first step in a process that will see the merged company broken into three separate businesses.

Dow and DuPont shares fell on Friday after soaring earlier in the week following reports of negotiations between the two companies.

Rivals such as Bayer, BASF, Solvay SA Solvay SA and Eastman Chemical Co in the United States might benefit in the near term while Dow and DuPont integrate, said Nomura analyst Aleksey Yefremov.

The merger-split promises to have a large impact on corresponding industries and will likely please activist investors who have spent years pushing for conglomerates to be broken up. One of those would offer everything for agriculture that DuPont Pioneer now has, plus Dow’s fertilizer business.

The companies said the merger would mean “run-rate cost synergies of approximately $3 billion, which are projected to create approximately $30 billion of market value”. Combined pro forma 2014 revenue for material science was about $US51 billion. Dow said it expects that move to yield more than $1 billion in annual earnings before interest, taxes, depreciation and amortization. He said he doesn’t expect issues because most of the businesses are complementary and not competitive.

Despite the eventual breakup, the deal is likely to face extreme regulatory scrutiny for all three companies, especially the proposed agricultural chemicals company, according to the New York Times.