Dow Chemical Company and DuPont Company announced pending nuptials this morning for their agricultural inputs children and two others.
DowDuPont will become three companies instead of one or two, breaking the business into an agriculture division, a science based industrial products company and a materials science company that creates specialty products.
On a conference call with reporters, Dow chief executive officer Andrew Liveris suggested he might be near retirement, but under the new group he will have the top title of executive chair and Dow CEO Edward Breen will keep that title for the three jointly held companies.
If the merger is approved by regulatory authorities, the combined company would divide into the three groups with Breen taking on the agriculture and special products groups to sort out those divisions.
Dow shareholders will get a single share in the new DowDuPont, while DuPont shareholders will pocket a 1.282 share. The total market capitalization is about US$130 million for the new company.
DuPont’s agricultural sales for the first three quarters of 2015 were about $9 billion, while Dow did about $5 billion. Dow’s agricultural sales made up about 12 percent of its total sales, while DuPont’s agriculture division took up 40 percent of its gross revenues.
As U.S. markets opened after the announcement, Dow shares fell about three percent and DuPont’s dropped 5.5 as compared to yesterday’s close, however, the companies’ share prices soared earlier this week on speculation about the merger.
DuPont’s Breen looked after the breakup of American giant corporation Tyco, and said he will use some of that model to create the three new businesses and rely on individual advisory boards for the new creations.
Companies will be reorganized based on equity rather than other measures such as EBITDA.
He said the businesses were relatively close in value and the deal is a merger of equals. However, values on the markets indicate that DuPont is the slightly larger twin.
The breakup of the new company into triplets will take place by late 2017 or mid-2018, according to the company.
Breen has been on board with DuPont for almost a year and said he has been looking for a deal to break up the company since he started, examining other mergers with large agricultural chemical companies and others.
The combined company will have to stand up to scrutiny by U.S. government regulators, but with little product overlap and existing large competitors Syngenta, Monsanto, BASF and Bayer, there are fewer obstacles than in other merger opportunities.
Breen said there is very little overlap in the company when it comes to products and research, but the combined company will be seeing substantial savings from cost reductions and restructuring. For now, both head office locations will be retained.
Last week, Dow sold its DNA related herbicide business to Gowan. That family of herbicides includes popular products Treflan and Edge and the sale included its manufacturing facility in Fort Saskatchewan, Sask.
Further details from Reuters News Agency:
The merger puts further pressure on rivals such as Germany’s BASF SE and Bayer AG to consolidate as falling crop prices curb sales.
It could also prompt a renewed flurry of takeover bids for European rivals, with Syngenta AG the most likely target.
Analysts have said a Dow-DuPont tie-up might push Monsanto Co to take another shot at Syngenta after the U.S. company abandoned a $45 billion offer for the Swiss company in August.
“The biggest impact will certainly be in the agriculture market, where the seeds and crop chemical industries are to undergo rapid consolidation,” SunTrust Robinson Humphrey analyst James Sheehan told Reuters on Friday.
“(The question is) how does Monsanto respond to the strategic move by two of its main competitors?”