DuPont, Dow to Join Forces


DuPont and Dow Chemical Co., both involved in the lubricants industry, announced plans Friday to merge to form DowDuPont, which would separate into three independent, publicly traded companies.

Dow manufactures polyalkylene glycol and silicones, and its Microbial Control business provides biocide and antimicrobial technologies. DuPont, according to its website, offers lubricants and greases formulated with its Teflon fluropolymer for use in cars, boats, tractors, power tools and industrial equipment.

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Upon closing of the all-stock merger, the combined company would be named DowDuPont and have a combined market capitalization of $130 billion at announcement. Dow and DuPont shareholders will each own about 50 percent of the combined company, on a fully diluted basis, excluding preferred shares. Subject to approvals, the transaction is expected to close in the first quarter of 2016, and the company would be dual headquartered in Midland, Mich., and Wilmington, Del.

The separation into three independent, publicly traded companies through tax-free spinoffs is expected to occur 18 to 24 months after the merger closes, subject to regulatory and board approval.

Ultimately there would be an agriculture company, a material science company and a specialty products company. The agriculture company would unite the two companies seed and crop protection businesses. Material science would include DuPonts Performance Materials segment, as well as Dows Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions and Consumer Solutions (excluding the Dow Electronic Materials) business segments. The specialty products company would include DuPonts Nutrition and Health, Industrial Biosciences, Safety & Protection and Electronics & Communications as well as the Dow Electronic Materials business.

With the merger and the subsequent spin off of separate business entities, we can expect R&D investments and long-term focus of each entity to be more structured, focused and in line with the value that can be derived from the businesses, Deepak Karthikeyan, visionary sciences industry manager for Mountain View, Calif.-based Frost & Sullivan, told Lube Report.

Karthikeyan acknowledged the merger should create benefits from a logistical point of view. The company can optimize supply chain, selling and production costs, leveraging both Dow and Duponts expertise in specific areas, he said. However, it is expected that this benefit will be more across the agro and the material science entities than the specialty products one, as the synergies are comparatively higher.

Both companies recently divested other operations that are part of the lubes industry. Dow Chemical sold Angus Chemical – which manufactures and distributes nitroalkanes and their derivatives – to private equity investment firm Golden Gate Capital for $1.2 billion early this year. DuPont in July separated its Performance Chemicals segment – including its Kryptox lubricants and greases based on perfluorinated ethers, and its biocides portfolio – into an independent, publicly traded company named The Chemours Co.

Karthikeyan said, The need of the hour for chemical companies is to have focused businesses and not exactly to be a larger entity. Both companies have been insulating their specialty markets from exposure in commodities by offloading commodity assets as recently as this year.

He noted it will be beneficial to use the strong feedstock operations of Dow and the specialty focus of both companies in an environment with such low oil prices. Having said that, the synergies that the entities can immediately tap across the specialty portfolios of the companies are not as much as expected. The combined agro entity will surely become formidable competition to the likes of companies like Monsanto, but the business and product overlaps across their specialty businesses are very few.

The companies expect to deliver $3 billion in cost synergies and to have about $1 billion in growth synergies.

As of now, Frost & Sullivan expects the merger will face regulatory hurdles across different regions as both companies have a huge global footprint, he said. However, if the merger does go through, it is going to be a big challenge for the non-agro business entities to unlock synergistic value in the short term, due to the mere size of the companies themselves, and the number of varied industries they focus on, Karthikeyan added.