Dow, DuPont Set for $130 Billion 'Merger of Equals'

Qmed Staff

December 11, 2015

3 Min Read
Dow, DuPont Set for $130 Billion 'Merger of Equals'

The chemical giants have announced a plan to merge and then break apart into three separate entities.

Qmed Staff

Dow and DuPont have agreed to merge in what the two companies term a "highly synergistic transaction" that will ultimately result in billions of dollars of cost savings and will create roughly $30 billion of market value.

The plan was unanimously approved by the boards of directors at the two companies, and is scheduled to close in the second half of 2016, subject to customary closing conditions including approvals by regulators and both of the companies' shareholders.

The $130 billion union is expected to produce triplets: The plan post-merger is to split DowDuPont into three companies--an agriculture company, material science company, and a specialty products company that would be an electronics products leader.

Like other recent multibillion-dollar mergers, the fusion of Dow and DuPoint would lead to tax savings, although it would not lead to an off-shore domicile for the combined company, as is the case of many other recent megamergers.

"They need to merge first in order for the subsequent spin-offs to qualify as tax-free transactions in the United States," James Sheehan, a SunTrust Robinson Humphrey analyst was quoted as saying in the BBC.

So far, the response to the deal has been less than positive.

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The Wall Street Journal was downbeat about the deal, grumbling in an article titled "Dow-DuPont Merger: Better Living Through Layoffs" that the deal reflected negative confidence about the U.S. economy.

In fact, DuPont even released a statement Friday detailing its "cost savings and restructuring plan" that could potentially affect 10% of the company's global workforce. 

DuPont's stock skidded on Friday by 5.51% to $70.44 while Dow Chemical's dipped 2.79% to $53.38.

U.S. antitrust regulators are also being called on to heavily scrutinize the proposed merger, according to the Washington Post. "Any merger that consolidates this market into fewer hands will give farmers fewer choices and put them at even more economic disadvantage," Wenonah Hauter, executive director of the Food & Water Watch advocacy group, said in a statement reported by the Post. "The Department of Justice needs to block this merger to prevent the further corporate control of the basic building blocks of the food supply."

DuPont and Dow are also both major suppliers of medical device packaging materials. DuPont, for example, boasts that its Tyvek is "used in virtually every form of sterile medical packaging and a wide variety of pharmaceutical packaging applications--both sterile and non-sterile." Dow, meanwhile, markets packaging materials including polyethylene resins such as Attane ULDPE resins, Dowlex polyethylene resins, Elite enhanced polyethylene resins, and Dow LDPE resins. An open question is how the combination of the two companies will affect the market for such packaging materials.

Dow's chief chief executive Andrew N. Liveris and DuPont CEO Edward D. Breen are expected to jointly head up the company. Liveris insisted the deal is a "game-changer."  

"Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities -- requiring each company to exercise foresight, agility and focus on execution," Liveris said.

Reflecting the combined companies' messaging that the deal is a union of equals, Dow and DuPont shareholders would each own roughly 50% of the combined company.

Headquartered in Midland, MI, Dow Chemical had 2014 revenue of $58.2 billion and employs approximately 53,000 people. DuPont, on the other hand, is based out of Wilmington, DE. It had 2014 revenue of $34.7 billion and has some 63,000 employees.

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