DuPont and Dow to Combine in ‘Merger of Equals’
Marking one of the largest mergers in the history of business, Dow Chemical and DuPont have agreed to combine their operations into one company that will subsequently split into three. On December 11, DuPont and The Dow Chemical Company announced that their 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 subsequently 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 Agriculture company, a global Material Science company, and a technology and innovation-driven Specialty Products company. Following the closing of the transaction, DowDuPont will be dual headquartered in Midland, Michigan and Wilmington, Delaware.
“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 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,” said Edward D. Breen, chairman and chief executive officer of DuPont.
Upon closing of the transaction, the combined company would be named DowDuPont and have a combined market capitalization of approximately $130 billion at announcement. Under the terms of the transaction, Dow shareholders will receive a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share. Dow and DuPont shareholders will each own approximately 50% of the combined company.
It is the intention of both companies’ boards of directors that, following the merger, DowDuPont would pursue a tax-free separation into three independent, publicly traded companies with each targeting an investment grade credit rating. Each would be a strong, focused business with powerful innovation capabilities, enhanced global scale and product portfolios, focused capital allocation, and a distinct competitive position. The three businesses that the boards intend to separate are:
Agriculture Company: A global pure-play agriculture company that unites DuPont’s and Dow’s seed and crop protection businesses. The combined entity is anticipated to have the most comprehensive and diverse portfolio and robust pipeline. Combined pro forma 2014 revenue for Agriculture is approximately $19 billion.
Material Science Company: A pure-play industrial leader, consisting 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. The combination of complementary capabilities will reportedly create a low-cost, innovation-driven leader that can provide customers in high-growth, high-value industry segments in packaging, transportation, and infrastructure solutions. Combined pro forma 2014 revenue for Material Science is approximately $51 billion.
Specialty Products Company: A technology driven innovative leader, focused on unique businesses that share similar investment characteristics and specialty market focus. The businesses will include DuPont’s Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications, as well as the Dow Electronic Materials business. Combined pro forma 2014 revenue for Specialty Products is approximately $13 billion.
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.
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 chief executive officer 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 full list of directors will be announced prior to or in conjunction with the closing of the merger.
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.