Dow Chemical Co. and DuPont Co., two historic giants of U.S. industry, will merge in a deal this is the first step inside a intend to create three new highly-focused businesses.
The merger, the largest ever in the chemicals industry, will combine products from both Dow and DuPont within the regions of agriculture, commodities chemicals and specialty chemicals to produce the brand new businesses. It comes after two years of pressure from activist investors who argued that shareholders of both companies would realize greater value when they were broken up.
Dow and DuPont will combine in an all-stock deal to produce a new company, DowDuPont, having a market capitalization of approximately US$130 billion, they said Friday inside a joint statement. Dow Chief Executive Officer Andrew Liveris, 61, will end up executive chairman. DuPont CEO Ed Breen, 59, is going to be CEO from the new company.
Investors will get one DowDuPont share for every Dow share, and 1.282 DowDuPont shares for each one of DuPont. The eventual breakup of DowDuPont into three independent, publicly traded companies through tax-free spin-offs is anticipated over 18 to 24 months following the completion of the merger.
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“This transaction is a game-changer for our industry and reflects the culmination of a vision we’ve had for over a decade to bring together both of these powerful innovation and material science leaders,” Liveris said within the statement.
Despite its size and complexity, the deal could overcome antitrust concerns with modest divestitures, according to analysts who track the businesses. The product overlap isn’t extensive and also the focus will probably be on seeds and crop chemicals, said Jason Miner, an analyst at Bloomberg Intelligence.
Even in those markets, Dow and DuPont compete against large rivals like Syngenta AG, Monsanto Co. and Bayer AG, Miner said.
It’s been a bumpy 2015 for DuPont, whose legacy reaches to 1802 when E. I. du Pont built a number of gunpowder mills across the banks from the Brandywine River near Wilmington, Delaware, in which the clients are still based.
In May, DuPont CEO Ellen Kullman won a proxy battle waged by Trian Fund Management, the activist investor co-founded by Nelson Peltz, which said a breakup from the company would save vast amounts of dollars in costs. Breen, perhaps most widely known for his role within the breakup of Tyco International Plc., replaced Kullman as CEO in November, setting up the basis for the merger.
Dow harks back to 1897, after Herbert Henry Dow discovered a different way to extract the element bromine -C then a useful ingredient in medicine and photographic materials – from brine situated in wells around Midland, Michigan, its current base. Within the last year, It too has faced criticism from an activist investor. Dan Loeb’s Third Point hedge fund targeted the business’s failure to satisfy some financial targets, and urged Dow to separate its petrochemicals and specialty-chemicals businesses.
The three new business organisations would concentrate on agricultural products including herbicides and genetically modified seeds, commodity chemicals including plastics, and specialty chemicals for example those used in solar panels.
DuPont’s agriculture business accounted for US$9.2 billion of revenue within the first nine months of 2015, or 41 percent of total sales, according to data published by Bloomberg. Dow’s unit had $4.8 billion of sales, for 13 percent of the total.
There’s been widespread speculation this year about potential consolidation in the agriculture industry as lower crop prices curb farmer spending, pressuring company earnings. Another factor has been Monsanto’s bid for Syngenta, which was withdrawn in August.
Monsanto says will still be looking for deals. Its CEO Hugh Grant said last month that “everybody continues to be talking to everybody” in the market.
The merger “answers the question in regards to what will be the first shoe to decrease in the ongoing speculation from the Ag industry consolidation,” said Chris Shaw and Herb Hardt, analysts at Monness Crespi Hardt & Co. in New York, in a note Wednesday, prior to the deal was confirmed.