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Dow, DuPont agree to combine in historic merger of equals

December 11, 2015
Dow Chemical Co. and DuPont Co., two historic giants of U.S. industry, said Friday morning that they plan to merge in a deal that’s the first step in a plan to create three new highly focused businesses.
 
All three would be independent, publicly traded companies. One would focus on agricultural products including herbicides and genetically modified seeds. That is the focus of Dow's Indianapolis-based Dow AgroSciences unit, but it was not immediately clear exactly how the Indianapolis business—which employs 9,000, including 1,500 in Indianapolis—would be affected. DuPont's ag unit is substantially larger than Dow Agro.

The merger, the largest ever in the chemicals industry, also would combine products from Dow and DuPont in the areas of commodities chemicals and specialty chemicals. It comes after two years of pressure from activist investors who argued that shareholders of both companies would realize greater value if they were broken up.
 
The new business, created through a stock swap, would be called DowDuPont and would have a market capitalization of about $130 billion. Dow CEO Andrew Liveris, 61, would become executive chairman. DuPont CEO Ed Breen, 59, would be CEO of the new company.
 
“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,” Liveris said in the statement.
 
Analysts say that combining Dow's and DuPont’s agricultural units would create a deeper pesticide portfolio against weeds, bugs and fungi and a stronger franchise in genetically modified seeds. The unit would be a formidable foe to Monsanto Co., the top global seller of seeds, and Syngenta AG, the world leader in pesticides.

Despite its size and complexity, the deal could overcome antitrust concerns with modest divestitures, according to analysts who track the companies. The product overlap isn’t extensive and the antitrust focus will probably be on seeds and crop chemicals, said Jason Miner, an analyst at Bloomberg Intelligence.

The crop chemicals industry has been in flux since this spring, when Monsanto made a $45 billion bid for Swiss agrochemicals company Syngenta AG. Though Syngenta rebuffed the offer, analysts have said for months they expect more deal-making .
 
On Oct. 22, Liveris announced Dow was exploring options for Dow AgroSciences, including selling the unit or spinning it off a stand-alone company.
 
“Literally since Monsanto-Syngenta conversations began in May, you can imagine every player talks to everyone,” Liveris said on a conference call that day. “So, yes, we are talking to everyone, [but] there is no imminent deal.”
 
DuPont's ag business had $9.2 billion of revenue in the first nine months of 2015, while Dow Agro had $4.8 billion.

Ag companies have been exploring merger options in part because earnings have fallen as lower crop prices curb farmer spending.
 
The merger “answers the question as to what would be the first shoe to drop in the ongoing speculation of the ag industry consolidation,” said Chris Shaw and Herb Hardt, analysts at Monness Crespi Hardt & Co. in New York, in a note Wednesday, before the deal was confirmed.
 
It’s been a bumpy 2015 for DuPont, whose legacy reaches back to 1802 when E. I. du Pont built a series of gunpowder mills along the banks of the Brandywine River near Wilmington, Delaware, where the company is 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 of the company would save billions of dollars in costs. Breen, perhaps best known for his role in the breakup of Tyco International Plc., replaced Kullman as CEO in November, setting up the basis for the merger.
 
Midland, Michigan-based Dow harks back to 1897, after Herbert Henry Dow discovered a new way to extract the element bromine -– then a useful ingredient in medicine and photographic materials -- from brine located in wells around Midland, Michigan, its current base. In the last year, It too has faced criticism from an activist investor. Dan Loeb’s Third Point hedge fund targeted the company’s failure to meet some financial targets, and urged Dow to split its petrochemicals and specialty-chemicals businesses.
 
There’s been widespread speculation this year about potential consolidation in the agriculture industry as lower crop prices curb farmer spending, pressuring company earnings.
 
The merger “answers the question as to what would be the first shoe to drop in the ongoing speculation of the ag industry consolidation,” said Chris Shaw and Herb Hardt, analysts at Monness Crespi Hardt & Co. in New York, in a note Wednesday, before the deal was confirmed.
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