Chemical Giants Dow Chemical and DuPont Announce $130 Billion Merger

Even in a year that will go down in history for the number of huge mergers, the $130bn combination of Dow Chemical and DuPont announced on Friday is a behemoth.

The merger would combine two companies that sell pesticides, plant foods and genetically modified crops to millions of farmers around the world, and make a variety of chemicals for consumer and industrial products ranging from electronics, automobiles as well as household goods to building materials and safety equipment.

The all-stock merger calls for the two companies to combine as Dow DuPont, then separate into three independent publicly traded companies focused on agriculture, material science and specialty products.

The merger brings to a close a record year for deal-making, surpassing a levels unseen since 2007. So Far this year more than $4trn of deals have been struck including the $103bn merger of AB Inbev’s with brewing rival SAB Miller and the $160bn merger of pharmaceutical companies Allergan and Pfizer.

The Dow-Dupont deal is a rare combination of equals, rather than a straight purchase – the stock ratio is calculated so that all shareholders of each component company will come away owning half of the new entity.

“Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities,” said Dow’s chairman and CEO, Andrew Liveris.

Liveris will be named executive chairman of the combined company while DuPont’s chairman and CEO, Edward Breen, will be CEO. The company will have dual headquarters in Michigan and Delaware, where the two companies are currently based.

Frank Mitsch of Wells Fargo Securities called the transaction “the deal of three centuries” on the companies’ call with investors on Friday morning, saying that he knew the merger had been a long time in the making. “Andrew has coveted this transaction for at least eight years by my clock.”

“I have also coveted the transaction,” said Breen. “I was looking at this very seriously as a board member since I joined the board last February.” Breen came to DuPont relatively recently, having been named CEO only last month.

In conjunction with the proposed merger, which is subject to regulatory approval, both companies are taking separate restructuring steps.

DuPont announced a companywide restructuring plan, including employee and contractor layoffs affecting about 10% of the company’s workforce, to reduce $700m in costs. It expects to record a pretax charge of about $780m, with approximately $650m of employee separation costs and about $130m of asset-related charges and contract terminations.

Dow, meanwhile, said it is taking full ownership of Dow Corning, currently a 50-50 joint venture between Dow and Corning. Dow said the move, expected to close in the first half of 2016, is expected to generate more than $1bn in additional adjusted annual earnings and will increase its product offerings in the building and construction, consumer care and automotive markets.

The companies said the proposed merger of equals, approved unanimously by their respective directors, will result in cost synergies of about $3bn that are projected to create approximately $30bn of market value.

Under the terms of the deal, Dow shareholders will receive a fixed exchange ratio of one share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share. Dow and DuPont shareholders will own about 50%, respectively, of the combined company.

The proposed agriculture business would unite DuPont’s and Dow’s seed and crop protection businesses. The material science company would combine DuPont’s performance materials segment with Dow’s performance plastics, performance materials and chemicals, infrastructure solutions, and consumer solutions units, excluding its electronic materials business. Combined pro forma 2014 revenue for material science was about $51bn.

The specialty products company would combine DuPont’s nutrition and health, industrial biosciences, safety and protection, and electronics and communications segments with Dow’s electronic materials business. Combined pro forma 2014 revenue for specialty products was approximately $13bn.

The new company’s board is expected to have 16 directors, consisting of eight current DuPont directors and eight current Dow directors.


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