Investors cheer possible Dupont, Dow Chemical deal

A merger would beef up the companies’ operating segments in pesticides and agricultural seed technology, as well as in industrial materials such as DuPont’s Kevlar and Dow’s Styrofoam brand building insulation.

At 3:13 p.m. (2015 GMT), the Dow Jones industrial average was down 107.8 points, or 0.61 percent, to 17,460.2, the S&P 500 had lost 19.95 points, or 0.97 percent, to 2,043.64 and the Nasdaq Composite had dropped 86.56 points, or 1.7 percent, to 5,011.68. Regardless, the ball will be in DuPont management’s court more than Dow Chemical’s.

If the Dow Chemical-DuPont merger holds, it would be among the biggest mergers of the year, joining the ranks of the Pfizer-Allergan and Anheuser-Busch InBev-SABMiller mergers.

After the merger, the company would break into three businesses – agriculture, specialty chemicals and commodity chemicals – because of regulatory and other issues, one of the people said.

Dow has produced a slew of plastics and agricultural chemicals, while DuPont claims innovations such as Kevlar and Teflon.

Following what would be structured as a merger of equals, the combined company could split into material sciences, specialty products and agrochemicals, the people said, cautioning that the plans have not been finalized.

Both companies are US institutions.

Big-box retailer Costco Wholesale tumbled 5.5 percent after net income for the quarter ending November 22 fell 3.2 percent to $480 million due to a one percent fall in comparable sales.

The company would be named DowDuPont, according to a news release from Dupont.

Dow and DuPont – the former founded in 1897 as a bleach producer in MI, the latter born in 1802 in DE as a gunpowder manufacturer – are among the best-known names in the chemicals business.

DuPont completed a spinoff this year of its struggling performance chemicals unit into a separate company called Chemours.

The pressure on Monsanto to defend its position as the biggest seeds player is probably “huge” as chemical companies will want to defend, or even strengthen, their market positions, said Oliver Schwarz, an analyst at MM Warburg.

In weighing a break-up of the combined Dow and DuPont, the two companies are following a path that both Pfizer and Anheuser-Busch InBev have embarked on.

Trian ran a lengthy proxy fight that DuPont defeated, but DuPont’s stock price continued to sag and is now down almost 10 percent for the year. Breen – who replaced Ellen Kullman in October – had experience breaking up a conglomerate when he ran security systems company Tyco International. Monsanto CEO Hugh Grant said last month that “everybody has been talking to everybody” in the industry.

Mr Loeb’s Third Point successfully campaigned to have two directors join the Dow board a year ago, after an aggressive public campaign personally vilifying Mr Liveris and seeking a breakup of the chemical firm. Dow’s stock is up 12 percent this year. Liveris is credited with putting Dow back on solid footing, fueling a rise in the company’s stock. Companies are taking advantage of cheap financing and strong profits to complete deals.