DuPont, Dow Chemical seek merger, then 3-way split
Dow Chemical and the DuPont Co. announced Friday that they are merging in a $130 billion chemical industry megadeal.
The merger would combine two companies that sell agricultural products to millions of farmers around the world, and make a variety of chemicals for consumer and industrial products ranging from electronics, automobiles, and household goods to building materials and safety equipment.
The two companies will form DowDuPont, then separate into three independent publicly traded companies focused on agriculture, material science and specialty products.
"Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities," said Dow Chairman and CEO Andrew Liveris in a statement.
Both companies have been under pressure from activist shareholders to control spending and shift away from commodities to faster-growing parts of their businesses.
DuPont said Friday that current conditions in the agriculture markets and emerging markets will make sales growth "challenging" in 2016. As a result, the company is cutting 10 percent of its global workforce, including employees and contractors, a move expected to cut costs by $700 million.
The Wall Street Journal first reported this week that DuPont and Dow were planning a merger. Analysts suggested that falling crop prices may have added to momentum for a deal by slowing growth in the agriculture sector, a key business for both companies, leaving a merger as an alternate path to growth.
"This merger makes so much strategic sense," said Jonas Oxgaard, an analyst with Sanford Bernstein, before the deal was officially announced. "Both DuPont and Dow have individual issues they're grappling with. They're not underperforming as companies, but there are things they could do better."
Liveris will be named executive chairman of the combined company while DuPont Chairman and CEO Edward Breen will be CEO. The company will have dual headquarters in Michigan and Delaware where the two companies are currently based.
The deal, which the companies expect to close in the second half of 2016, is sure to be closely scrutinized by regulators.
Oxgaard said there are a few areas of overlap - both sell corn seed, for example - where divestitures might be necessary. But for the most part, the companies have minimal overlap and in some cases, even complementary product offerings, he said. For example, Dow sells solar shingles and DuPont sells an adhesive for solar panels. DuPont sells composites for use in cars while Dow sells adhesives for that market.
Dow said it is taking full ownership of Dow Corning, currently a 50-50 joint venture between Dow and Corning. Dow said the move, expected to close in the first half of 2016, is expected to generate more than $1 billion in additional adjusted annual earnings and will increase its product offerings in the building and construction, consumer care, and automotive markets.
DuPont expects to record a pretax charge of about $780 million related to its restructuring plan, with approximately $650 million of employee separation costs and about $130 million of asset-related charges and contract terminations. The companies said the proposed merger will result in cost synergies of about $3 billion.
Under the terms of the deal, Dow shareholders will receive a fixed exchange ratio of one share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share. Dow and DuPont shareholders will own about 50 percent, respectively, of the combined company.
The proposed agriculture business would unite DuPont's and Dow's seed and crop protection businesses. The material science company would combine DuPont's performance materials segment with Dow's performance plastics, performance materials and chemicals, infrastructure solutions, and consumer solutions units, excluding its electronic materials business.
Combined pro forma 2014 revenue for material science was about $51 billion.
The specialty products company would combine DuPont's nutrition and health, industrial biosciences, safety and protection, and electronics and communications segments with Dow's electronic materials business.
Combined pro forma 2014 revenue for specialty products was approximately $13 billion.
The new company's board is expected to have 16 directors, consisting of eight current DuPont directors and eight current Dow directors.