Dow-DuPont Merger: The Shrinking of American Ambition -- The Game
09 Dezember 2015 - 4:42AM
Dow Jones News
By Dennis Berman
To the eyeshades on Wall Street, a DuPont- Dow Chemical merger
is a thing of utter sensibility. Cut costs. Rationalize. End two
problems with one final $60 billion flourish.
But there is a mournful edge to the whole idea. It's as if these
two companies--absolute bedrock of U.S. industrial might--have
given up faith in themselves and their futures.
Is thriving, surviving, and adapting through 331 years of total
history not enough to keep these companies confident? DuPont was
founded in 1802, Dow Chemical in 1897. Surely they have persevered
through things tougher than activist investors in argyles and
loafers.
Self-confidence seems to brim only in Silicon Valley. Across the
American business world, the goal is to cut costs, consolidate, do
more with less.
You can literally feel it when you are shoved onto on a shrunken
middle seat on a United Continental or American-US Airways flight.
Or perhaps when you drink a future Budweiser-Miller brew. Or are
left selecting health insurance among a dwindling set of
megaproviders.
The argot of American business has been reduced to "sensible
growth," "dividend return" and "listening to shareholders."
This is not an America playing to win. It's an America playing
not to lose.
There are three main reasons for this:
1) The economy at large isn't producing enough growth to keep
stockholders content. For the largest companies--who are more or
less indexed directly to U.S. and global growth--there is little
they can do but keep cutting costs. (Predictions for 2016 global
GDP growth of 3.3% seem very aggressive.) Eventually, this takes
the forms of mergers, and 2015 has produced over $4 trillion of
transactions. The vast majority of them are "in industry," which is
banker-ese for cost-cutting exercises. The CEO of Fiat Chrysler
Automobiles is literally begging General Motors to buy his
company.
2) Activist investors. They may well just be ciphers for the
bigger economic forces at work, but their particular brand of
behavior modification has shaken boards to their core. Activists
can absolutely do good for companies and the economy. (An in-depth
Journal study of their influence showed a mixed track record.) The
more important change is how they have forced boards into an
intellectual sameness, and certainly a fear of reproach. Activists,
as I've written before, "patrol the markets like prison guards with
billy clubs." Such seems the case with DuPont and Dow Chemical,
both upended by activists.
3) China. Why couldn't Sinochem become the Huawei of
agriculture? Few in the U.S. know much about companies like the
state-owned Sinochem, which are increasingly advanced players in
the global market for chemicals and agriculture technology. It's
not hard to imagine a future where Sinochem slowly takes market
share in small markets, and then works its way across Asia, Africa
and into Europe and the Americas. It could be much in the way that
Huawei has done for telecom, forcing a four-way merger between the
last Western majors of Lucent Technologies, Alcatel, Nokia and
Siemens. For Dow and DuPont, perhaps it's best to merge sooner than
later.
Each of these reasons suggest that a DuPont-Dow deal is,
intellectually, a perfectly sensible outcome.
Emotions are another matter. It's only a matter of time until
the congressional hearings and testimony from very angry farmers.
Eventually someone will tote up the loss of research and
development, jobs, and economic support for communities.
And then perhaps the final, creeping fear: If the likes of
Pfizer, Anheuser-Busch, DuPont, UnitedHealth and American Airlines
have lost faith in the future, why should we feel any
different?
Write to Dennis Berman at dennis.berman@wsj.com
(END) Dow Jones Newswires
December 08, 2015 22:27 ET (03:27 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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