By David Benoit, Jacob Bunge and Chelsey Dulaney
Dow Chemical Co. and DuPont Co. announced Friday that they have
agreed to merge, fusing two of the U.S.'s oldest companies into a
chemical giant currently worth about $130 billion.
Under the terms of the deal, shareholders of Dow Chemical will
get 1 share in the new company called DowDuPont for each Dow share,
while DuPont shareholders will get 1.282 shares for each DuPont
share. The deal's structure will give Dow and DuPont shareholders
equal stakes in the combined company.
The Wall Street Journal reported the companies were in talks to
merge on Tuesday.
Dow's Chief Executive Andrew Liveris will be executive chairman
of the new company, with DuPont Chief Executive Edward Breen
keeping the CEO title.
The companies expect the merger, which must be approved by
regulators and both companies' shareholders, to be completed by the
second half of 2016.
The deal will be followed by a three-way breakup of the combined
company, a common approach to mergers and acquisitions of late. The
three resulting companies, which would be publicly traded, would be
focused on agriculture, material sciences and specialty
products.
Dow's shares rose 2% in premarket trading, while DuPont shares
fell 3%.
Still, there is no guarantee antitrust regulators would bless
the union or that a breakup plan would address any such concerns.
The merger would combine two top suppliers of industrial and
agricultural chemicals and crop seeds, but it comes as sinking
commodity prices and a strengthening U.S. dollar have hurt revenue
across the companies' business lines.
Should the deal come to fruition, a combination of the
companies, each more than a century old, would be one of the
biggest in a year marked by big deals. So far, companies have
struck some $4.35 trillion of takeovers in 2015, eclipsing 2007 as
the top year on record for deals, according to Dealogic.
Both Dow and DuPont have been restructuring their businesses as
they've come under pressure from shareholders to slim themselves
and focus on faster-growing business lines--sometimes by shedding
products that made them famous.
DuPont has exited performance paints and coatings, including the
business that invented Teflon nonstick pan coating. Dow, meanwhile,
has gotten out of selling materials like chlorine and the epoxy
used in everything from space travel to Ziploc bags.
The companies expect a combination would accelerate
cost-cutting. They expect the deal to result in $3 billion in cost
synergies.
But before the companies merge, they will further restructure
their businesses.
DuPont said separately Friday that it would cut $700 million in
costs in 2016, affecting 10% of its global workforce. DuPont had
about 63,000 employees at the end of 2014, according to a
regulatory filing. The company expects to book a pretax charge of
$780 million related to the cuts.
For its part, Dow said that it would take full ownership of Dow
Corning Corp., which it jointly owns with Corning Inc. Dow said it
expects the move to yield more than $1 billion in annual earnings
before interest, taxes, depreciation and amortization.
The DowDuPont deal comes shortly after DuPont named Mr. Breen, a
turnaround expert, as the company's chief executive after a stint
as interim CEO. Prior CEO Ellen Kullman retired after fending off
Nelson Peltz and Trian Fund Management LP, which sought board seats
and criticized the company--and its leadership--for bloated
corporate spending and a continued failure to hit earnings
forecasts.
Soon after Mr. Breen stepped in to run DuPont in October, Mr.
Liveris called him to propose a deal. For more than a decade, Mr.
Liveris had sought to merge with DuPont, and he pitched a deal as a
way to find synergies before breaking up the businesses into more
focused operations, the people said.
For its part, Dow also has had an activist investor. Last year,
the company added two directors nominated by Daniel Loeb's Third
Point LLC after Mr. Loeb sought a breakup of the company and
threatened a proxy fight.
Talks of consolidation in the agricultural-sciences industry
have heated up recently, with companies scrambling to adjust to
pressure on lower prices for their commodities.
Last month, The Wall Street Journal reported that DuPont was
discussing a potential combination of its agriculture division with
seed giant Syngenta AG, and separately exploring a potential
agriculture deal with Dow. Monsanto Co. earlier this year abandoned
a $46 billion bid for Syngenta amid resistance from the Swiss
company.
Dana Cimilluca and Dana Mattioli contributed to this
article.
Write to David Benoit at david.benoit@wsj.com, Jacob Bunge at
jacob.bunge@wsj.com and Chelsey Dulaney at
Chelsey.Dulaney@wsj.com
(END) Dow Jones Newswires
December 11, 2015 07:33 ET (12:33 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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