 "DuPont's Edward Breen (left) and Dow's Andrew Liveris announcing the deal")
On December 11, 2015, boards of directors of DuPont and the Dow Chemical Company have unanimously approved a definitive agreement under which the two companies will combine in an all-stock merger of equals. The two companies intend to subsequently pursue a separation of the combined company, to be named DowDuPont, into three independent, publicly traded companies through tax-free spin-offs.
The proposed three-way division will create an agriculture company; a material science company; and an innovation-driven specialty products company. Each of the businesses will have clear focus, an appropriate capital structure, a distinct and compelling investment thesis, scale advantages, and focused investments in innovation to better deliver superior solutions and choices for customers.
“This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders. 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. This transaction is a major accelerator in Dow’s ongoing transformation, and through this we are creating significant value and three powerful new companies. This merger of equals significantly enhances the growth profile for both companies, while driving value for all of our shareholders and our customers,” said Andrew Liveris, Dow’s chairman and chief executive officer.
Edward Breen, chairman and chief executive officer of DuPont, added, “This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies. Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each business will be a leader in attractive segments where global challenges are driving demand for these businesses’ distinctive offerings.”
Upon closing of the transaction, DowDuPont will have a combined market capitalisation of approximately $130 billion at announcement. Dow and DuPont shareholders will each own approximately 50 percent of the combined company, on a fully diluted basis, excluding preferred shares.
The transaction is expected to deliver approximately $3 billion in cost synergies, with 100 percent of the run-rate cost synergies achieved within the first 24 months following the closing of the transaction. Additional upside of approximately $1 billion is expected from growth synergies.
While Liveris will become executive chairman of the combined entity, while Breen will be the CEO of DowDuPont.
Challenge for non-agro business entities to deliver synergistic value
Both companies have been insulating their specialty markets from exposure in commodities by offloading commodity assets as recently as this year. Experts believes that the cost advantages that can be achieved in the agro business will be significant for the combined entity. “Moreover, it will also be beneficial to use the strong feedstock operations of Dow and the specialty focus of both companies in such a low oil price scenario. Having said that, the synergies that the entities can immediately tap across the specialty portfolios of the companies are not as much as expected,” commented Deepak Karthikeyan, industry manager, chemicals, materials & foods practice, Frost & Sullivan.
He added, “The combined agro entity will surely become a formidable competition to the likes of companies like Monsanto, but the business and product overlap across their specialty businesses are very few. For instance, electronic and display materials is an area where the companies can potentially experience cost benefits and increased market penetration, while other markets such as safety, where Dow is not active, will not see much change.”
At present both companies focus on areas such as polymers, elastomers, composites and photovoltaic materials, which can prove to be a game changer in those industries. “As of now, we expect the merger to face regulatory hurdles across different regions as both companies have a huge global footprint. However, if the merger does go through, it is going to be a big challenge for the non-agro business entities to unlock synergistic value in the short term due to the mere size of the companies themselves and the number of varied industries they focus on,” opined Karthikeyan.
