December 11, 2015


A Dow-DuPont amalgamation: Possible merger could spark off takeover bids
By Terry Tan


The news that Dow Chemical Co. and DuPont Co. are negotiating for a possible merger had generated shockwaves within the industry, and came towards the end of a year marked by takeovers amounting to about US$4.35 trillion.


When this amalgamation happens, the union could revive takeover attempts for European corporations, Reuters reported. Both companies could officially announced the union by December 11, sources familiar with the matter said.


Switzerland's Syngenta AG for instance - which rejected a US$47 billion offer from Monsanto in August this year and at one time accused the latter of trying to buy the company "on the cheap" - might soon find itself back in the gunsight.


Bernstein analysts believed that a successful Dow-DuPont merger could motivate Monsanto to launch a more tempting offer of up to 485 Swiss Francs per share, an increase from 470 Swiss Francs (in cash and stock) in a previous bid.


A renewed effort to lure Syngenta into consolidation could not be discounted: Hugh Grant, Monsanto's CEO, previously stated that merging with Syngenta would - aside from expanding sales - expedite its R&D process. Two-thirds of the corporation's current sales come from seeds and genomics.


China National Chemical Corp - another bidder for Syngenta whose US$42 billion offer was turned down - could launch a fresh attempt. However, bankers in Asia said that the Chinese company is unlikely to orchestrate a hostile takeover, being more comfortable with a smaller and more manageable transaction. 


Interestingly, Syngenta was also considered by DuPont last November for a combination of the latter's agriculture division and the Swiss corporation, the Wall Street Journal reported.  


In the meantime, the bull market charges in favour of Syngenta's US-listed shares; those spiked by more than 7% and ended up 1.69% at 366.10 Swiss Francs on December 9, in Switzerland.


Elsewhere in Europe, Germany's BASF SE and Bayer AG could feel increasingly compelled to consolidate, in face of not just the potential Dow-DuPont union, but also affected sales due to declining crop prices.


In light of Monsanto's failure to buy over Syngenta, Bayer AG's crop chemicals business was mentioned by Brett Begemann, Monsanto's chief operating officer, as an alternative.


However, Bayer is not planning to sell its crop chemicals business, Marijn Dekkers, the CEO of the company, said. The company intends to be a buyer, not a seller, he told the Financial Times.


As for BASF, it recently sold its Magenta Master Fibers business to compounder and concentrate maker, PolyOne Corp, for US$22 million.



Three-way split upon union


Billed by some as a 'merger of equals' (as there would not be a huge premium for shareholders on both sides), the Dow-DuPont merger, when materialised, could brought forth more than US$92 billion in annual sales.


Following the revelation of talks concerning this development, shares of both companies jumped by 12% in Wall Street. Dow's stock opened at US$55.72 per share on December 9, compared to US$47.08 in October 9. 


Until an agreement is signed, it's uncertain whether the talks could reach a successful outcome, according to some sources. Still, there were doubts that a counter bid from a competitor might interfere.


However, the potential remains strong, with Dow's current chief executive, Andrew Liveris, having courted DuPont for more than a decade, and apparently reaching out to Edward Breen - DuPont's CEO - upon his appointment to the helm of the corporation in October, the Wall Street Journal said. 


If the Dow-DuPont deal gets through, Liveris may become the executive chairman of a new corporation, with Breen retaining his current post.


An agreement would also result in a three-way breakup of the joint company, based on observations of recent mergers and acquisitions. The three businesses focus on agriculture, specialty chemicals and plastics.


In addition, the merger is expected to comply with antitrust regulations, given the size of both businesses being the top suppliers of crop seeds and agricultural chemicals.


Based on Morgan Stanley's data, the DuPont-Dow pairing contribute about 17% to the global sales of pesticides and would dominate as the third biggest crop chemicals supplier. In the US markets for corn seed and soybean, their share could tally to 41% and 38%, respectively.   


The companies are required to sell off certain assets in order to mitigate their market influences, with some businesses possibly placed under ownerships of Syngenta, Monsanto and other players, Reuters noted.


Related to these developments, Dow may be selling off its AgroSciences unit, according to a company announcement.


The corporation will focus its "ongoing portfolio management actions" on that business, with priority on reviewing "all options" and a "best owner mindset" to "extract further value" from the sales of AgroSciences, said Dow officials.  


Furthermore, DuPont and Dow were urged by shareholders to cut down their businesses and focus on faster-growing units. Sources explained that the merger would speed up restructuring from the effect of the three-way division.  


Dow has indeed underwent some major changes even before the mention of the merger this month. The corporation had, since 2009, slashed businesses that provided US$15 billion in annual revenues.


Adjustments within the company were so significant that Dow could strike "Chemical" off its name, Liveris noted.

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