ISU management professor says Dow-DuPont merger could benefit Iowa

Chemical giants DuPont (DD.N) and Dow Chemical Co (DOW.N) agreed to merge in an all-stock deal valuing the combined company at $130 billion (£85.8 billion), with plans to eventually split into three. DowDuPont will claim both Dow’s Midland, Mich., base and DuPont’s Wilmington, Del., location as dual headquarters, and create a 16-person board with eight directors coming from each side.

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 material science company would consist of DuPont’s Performance Materials segment as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions and Consumer solutions (excluding the Dow Electronic Materials business) operating segments.

The new agriculture enterprise, which will vie against Monsanto and other competitors, would be formed out of the combination of Dow’s and DuPont’s seed and crop protection businesses.

Dow shareholders would own 52 percent of the new company after preferred shares are converted, the companies said.

In a separate statement, DuPont announced $700 million in cost restructuring that will impact about 10 percent of its global workforce, which numbered 63,000 at the end of 2014.

The separation into three companies is expected to happen over about 18-24 months after the merger is complete in the second half of 2016. Edward Breen, now DuPont’s CEO, will become the new company’s CEO. Dow said closing is expected by mid-2016 and that Dow Corning will continue to operate as a separate, active business. With its home in MI since 1897, Dow has approximately 53,000 employees globally and about 6,000 employees in the state.

For its part, Dow is slashing $300 million in prices before the close of the deal as a portion of what it called a 3-year, $1 billion “productivity strategy”.

But Breen said that while consolidation in the agricultural industry is a “natural step”, any ag-related divestitures are likely to be minimal.

The companies said the proposed merger will result in cost synergies of about $3 billion.

Nelson Peltz, an activist investor who has been prodding DuPont to break up, and Daniel S. Loeb, who has been doing the same for Dow, have yet to weigh in on the merger.

Of the three companies that will spin out of DowDuPont, the largest will be the materials science firm, which will have an estimated $51 billion in sales.

The New York investment firm said it was approached by the companies to “assist in negotiations”, including on structure and governance of the combined entity and the planned spinoffs.

“When I look and DuPont and Dow, I see businesses that fit together like hand in glove”, Breen told reporters, according to the USA Today.

In recent years, however, both companies have focused on agriculture, as global demand for increased food supplies has driven sales of genetically engineered seeds, fertilizer, herbicides and pesticides. Companies are finding it more hard to grow, they are looking for the revenue and cost synergies that could materialize from a deal like this.