December 14, 2015

 

Dow, DuPont merge in landmark US$130 billion deal

 

 
       
 

The highly anticipated merger between DuPont and Dow Chemical Co was finally agreed upon by both corporations on December 11, setting in motion for a division of the new company into three separate entities, Reuters reported.

 

The split could happen 18 to 24 months after the agreement concludes, and spring forth the different businesses of material sciences, specialty products, and seeds and agrochemicals.    

 

Falling crop prices and weak demand for farm chemicals in recent times had been driving factors for the US$130 billion union which will brought about cost and tax savings. Nelson Peltz, an activist investor from Trian Partners, called the merger a "great outcome for all shareholders".

 

Following the conversion of preferred shares, 52% of the joint organisation's ownership will be held by Dow shareholders. Andrew Liveris, the current chief executive of Dow, could be made executive chairman of the union, with Edward Breen, DuPont's CEO, keeping his present appointment.

 

In addition, the merger is protected by a US$1.9 billion termination fee under specified conditions.

 

The union, though, will first undergo regulatory screening to determine the combined businesses' influence affecting competition especially in the agriculture sector. According to James Sheehan, an analyst with SunTrust Robinson Humphrey, a merger is required for subsequent spinoffs to qualify as tax-free transactions in the US. 

 

He also noted that the most significant impact from the deal will likely be reserved for the agriculture market which is facing "rapid consolidation" among seeds and crop chemical industries. BASF and Bayer AG are pressured more than ever to merge as the Dow-DuPont union is expected to instigate takeover bids for European corporations. These include a possible revival of Monsanto's interest to buy over Syngenta which previously rejected the former's US$45 billion offer in August.

 

Following the merger's announcement, some individuals responded to the development with caution and less-than-enthusiastic feedback.

 

The union could risk creating a "duopoly" in the seed market which is currently dominated by Monsanto, warned Diana Moss, the president of the American Antitrust Institute.   

 

Chuck Grassley, the chairman of the US Senate Judiciary Committee, stated that the merger demands "serious scrutiny" in view of the huge influence that DuPont and Dow wield upon the US industry.