DuPont, Dow Chemical to merge, then form 3 companies; layoffs expected

In a $130 billion deal, Dow Chemical and the DuPont Co. announced Friday that they are merging.

The deal to combine two of the biggest and oldest USA chemical producers is a prelude to an eventual split-up of the combined company into three discrete businesses, Dow and DuPont said yesterday.

The materials company will fold in the automotive units of both Dow and DuPont, in addition to their performance-materials divisions and other units, to create a $51 billion-a-year company.

While the possible merger puts the focus on agricultural companies, Frost & Sullivan says the overlap between the new company and industry giants like Monsanto is relatively small.

“This merger makes so much strategic sense”, Jonas Oxgaard, an analyst with Sanford Bernstein, said after reports earlier this week signaled the deal was coming.

Liveris would become executive chairman of the combined company, while Edward D. Breen, the chief executive of DuPont, would become chief executive of DowDuPont.

DuPont announced a companywide restructuring plan, including employee and contractor layoffs affecting about 10% of the company’s workforce, to reduce $700m in costs.

Dow’s businesses in this area include Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions and Consumer Solutions. Notably, it produces Styrofoam insulation products and chlorine products and owns half of Dow Corning, a silicone products maker.

In a separate announcement, Dow Chemical said it would buy the remaining stake in its 50-50 joint venture with Corning Inc, the supplier of Gorilla Glass for iPhones. The deal is expected to close by year’s end 2016, with the planned separations expected to occur 18 months to 24 months following the close.

Terms of the deal call for Dow holders to receive one share of the new DowDuPont for each share held, while DuPont holders will receive a fixed exchange ratio of 1.282 shares for each share held. Iowa Republican Senator Chuck Grassley said in a statement combining two titans of American business would require “serious scrutiny” from regulators.

He said merging with Dow and then breaking into three units is far preferable to a split of DuPont by itself, a path proposed in late 2014 by activist investment firm Trian Fund Management LP.

The company will have dual headquarters in MI and DE where DOW and DuPont are now based.

In its patent application for Lycra, DuPont highlighted some of the features that would make Lycra famous: The “outstanding properties” suggesting “many applications in the film and fiber fields”, including a “high elasticity”.

The merger will generate cost savings of about $3 billion in the first two years, with $1 billion in other savings possible.

The new company’s board is expected to have 16 directors, consisting of eight current DuPont directors and eight current Dow directors.

DuPont, formally E.I. du Pont de Nemours & Co., is a Wilmington, Del.-based company that had 2014 revenue of $34.7 billion and employs about 63,000.

The third business, selling seed and crop protection chemicals, generated adjusted revenue of about $19 billion.

The specialty products company will sell materials to the electronics and communications industries as well as to the safety and protection sectors.