DuPont, Dow Looking To Combine In $130 Bil Mega-Merger

DuPont, Dow Looking To Combine In $130 Bil Mega-Merger
Chart via S&P Capital IQ

It turns out the hard-to-believe rumors were true. The two titans of the U.S. chemical sector — Dow Chemical and Dupont — announced on Friday that they were planning to merge, and then eventually break up into three separate enterprises. This largest-ever deal in the chemical sectors brings together two of the oldest and most well-known U.S. chemical manufacturers.

The joint statement noted that DuPont and Dow Chemical Co had agreed to merge in an all-stock deal worth $130 billion. This completion of the merger is a major win for activist investors and could result in further consolidation in the chemicals industry. The new merged entity will be named DowDuPont.

The statement also highlighted that the merger was just the first step in a plan to break up the new combined company into three separate businesses. The three-way breakup would result in separate. leaner and more profitable agriculture, materials and specialty product businesses.

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When the merger of equals is finalized, Andrew Liveris (the current President, Chairman and CEO of Dow) will become the Executive Chairman of the newly formed DowDuPont Board of Directors, and Edward Breen (the current Chair and CEO of DuPont) will become the CEO of DowDuPont

The $130 billion mega-deal will, however, certainly face intense scrutiny from federal and state regulators, particularly given the notable overlap in the firms’ agriculture divisions.

Statement from management at DuPont and Dow

“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,” noted Andrew Liveris, Dow chairman and CEO. “Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities – requiring each company to exercise foresight, agility and focus on execution. This transaction is a major accelerator in Dow’s ongoing transformation, and through this we are creating significant value and three powerful new companies. This merger of equals significantly enhances the growth profile for both companies, while driving value for all of our shareholders and our customers.”

“This is an extraordinary opportunity to deliver long-term, sustainable shareholder value through the combination of two highly complementary global leaders and the creation of three strong, focused, industry-leading businesses. Each of these businesses will be able to allocate capital more effectively, apply its powerful innovation more productively, and extend its value-added products and solutions to more customers worldwide,” commented Edward Breen, chairman and CEO of DuPont.

Significant synergies with Dow Dupont merger

The merger agreement calls for Dow shareholders to receive a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share they own, and for DuPont shareholders to receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share they own.

After the transaction is finalized, the shareholders of each firm will each own close to 50% of the new, combined company, on a fully diluted basis excluding preferred shares.

The statement from the companies also highlighted the merger is anticipated to result in around $3 billion in cost synergies, with all of the run-rate cost synergies expected to be seen in the first two years after closing. Another $1 billion in savings will come from growth synergies over the following year.

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