US chemicals giants Dow Chemical and DuPont merge

America’s chemicals giants Dow Chemical and DuPont plan an all-share merger that would see shareholders in each firm receive 50% of the combined entity, DowDuPont, which would have a market value of around $130bn. Both are well-established blue chips: DuPont began life in 1802 as a gunpowder manufacturer for the revolutionary war; Dow was founded in 1897. After their merger, the new group plans to split into three new separately listed units: plastics, agribusiness and speciality chemicals.

What the commentators said

The mission statement here is “a problem shared is a problem halved”, said
Ed Crooks in the FT. Both firms have had a rough ride of late. A lacklustre global economy, a strong dollar, and a commodities bear market have been the main headwinds. Activist investors have been breathing down both boards’ necks, pushing them to release value by “[refining] their sprawling multi-faceted chemicals conglomerates into more focused businesses”, said Crooks.

Breaking up lumbering giants certainly often helps release value, “but in this case it doesn’t look as if there’s a big conglomerate discount that would evaporate”, reckoned’s Robert Cyran. The sum of the parts of the two companies, based on the valuations investors are paying for their peers, “is not far from where the stocks trade”. Still, there would be impressive cost savings from the deal.

These are estimated at around $3bn by Deutsche Bank, said The Wall Street Journal’s Charley Grant: “a chunky” 23% of the groups’ combined selling, general and administrative expenses over the past year. And the overall logic of the tripartite split is sound, as these businesses vary in terms of their long-term prospects, profitability and sensitivity to the business cycle. But merging, persuading regulators that the deal won’t be anti-competitive, and then splitting, will take several years. “Get comfortable.”

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