DuPont and Dow merger set to form mega chemical company

By Simon Pitman contact

- Last updated on GMT

DuPont and Dow merger set to form mega chemical company

Related tags: Public company, Mergers and acquisitions, Market capitalization

DuPont and Dow are to merge with the intention of forming three divisions that will include a material science business as the focus for cosmetics and personal care ingredients, that will eventually be spun off into three separate companies.

Officially named DowDuPont, the decision to go ahead with the merger ends long-standing talks between executives at the two businesses, leading to intense speculation over the outcome.

The merger gives the two combined business projected revenues of more than $93billion for 2015, which puts it ahead of the world’s largest chemicals player, BASF, which currently has projected revenues of around $90 billion in 2015.

Market capitalization of $130 billion

While the combined 2014 revenues for the DowDuPont businesses were $83 billion, the new market capitalization is estimated at a staggering $130 billion - a figure that reflects the immense global reach of the business.

Besides the material science division, the newly merged business will also focus on two other areas – agriculture and specialty products - which will eventually be  listed as individual publicly traded companies and spun-off to take advantage of a tax-free status . The spin off is expected to take place approximately two years after the mergers has been completed.

In an official communication from the two companies to confirm the merger, the statement led with the fact that the deal is likely to be highly synergistic and should result in cost savings of approximately $3 billion.

Fewer ingredients suppliers and job cuts?

This is likely to translate into fewer ingredients suppliers for beauty manufacturers to choose from, as well as a number of job cuts as production facilities and other shared or overlapping resources are combined.

However, the synergies are also predicted to lead to further growth for the business, with the companies’ executives estimating that the combined revenues are likely to grow by $1 billion.

The transaction will be an all-stock merger of equals that will see Dow and Dupont shareholders each owning approximately 50% of the combined business.

A 'game-changing' transaction

“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.”

The transaction is expected to close in the second half of 2016, subject to regulatory approval and approval by shareholders, while the spin-off would occur approximately 18 – 24 months after closing.

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