DuPont, Dow Chemical Sign Merger Deal

In December, DuPont and Dow Chemical boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals. The combined company will be named DowDuPont.

The parties intend to pursue a separation of DowDuPont into three independent, publicly traded companies through tax-free spin-offs. This would occur as soon as feasible, which is expected to be 18-24 months following the closing of the merger, subject to regulatory and board approval.

The companies will include a global pure-play agriculture company; a global pure-play material science company; and a technology and innovation-driven specialty products company. Each of the businesses will have clear focus, an appropriate capital structure, a distinct and compelling investment thesis, scale advantages, and focused investments in innovation to better deliver superior solutions and choices for customers, the business said in statements about the accord.

“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,” said Andrew N. Liveris, Dow’s chairman and chief executive officer. “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,” added Edward D. Breen, chairman and chief executive officer of DuPont. “For DuPont, this is a definitive leap forward on our path to higher growth and higher value. This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies. Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each business will be a leader in attractive segments where global challenges are driving demand for these businesses’ distinctive offerings.”

Upon closing of the transaction, the combined company would be named DowDuPont and have a combined market capitalization of approximately $130 billion. The transaction is expected to deliver approximately $3 billion in cost synergies, with 100% of the run-rate cost synergies achieved within the first 24 months following the closing of the transaction.

Additional upside of approximately $1 billion is expected from growth synergies, according to the firms.

Once spun-off, the Material Science Company will consist of DuPont’s Performance Materials segment as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions (excluding the Dow Electronic Materials business) operating segments. Combined pro forma 2014 revenue for material science is approximately $51 billion.

The Specialty Products Company will be focused on unique businesses that share similar investment characteristics and specialty market focus. The businesses will include DuPont’s nutrition and health, industrial biosciences, safety and protection and electronics and communications units, as well as the Dow Electronic Materials business. Together, their complementary offerings create a new global leader in electronics products, and each business will benefit from more targeted investment in their productive technology development and innovation capabilities. Combined pro forma 2014 revenue for specialty products is approximately $13 billion, the firms said.

Advisory committees will be established for each of the businesses. Breen will lead the agriculture and specialty products committees, and Liveris will lead the material science committee. These committees will oversee the respective businesses, and will work with Liveris and Breen on the intended separation of the businesses into independent, standalone entities, according to DuPont.
Upon completion of the transaction, Liveris, president, chairman and CEO of Dow, will become executive chairman of the newly formed DowDuPont board of directors; Breen, chair and CEO of DuPont, will become CEO of DowDuPont. In these roles, both Liveris and Breen will report to the board of directors. In addition, when named, the chief financial officer will report to Breen. 

DowDuPont’s board is expected to have 16 directors, consisting of eight current DuPont directors and eight current Dow directors.
The merger transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals, and approval by both Dow and DuPont shareholders. The subsequent separation of DowDuPont, which the companies intend to pursue, would be expected to occur 18-24 months following the closing of the merger.