Dow – DuPont merger on course

14-Mar-2016 - Last updated on 14-Mar-2016 at 14:31 GMT

The two US chemical corporations jointly filed a preliminary registration statement with the Securities and Exchange Commission this month, outlining plans for leadership, work streams, synergies, and finance.

DowDuPont, as the combined company will be called, signed a merger deal in Q4 last year. Reporting on the eminent transaction, Cosmetics Design affirmed that “the consolidation of these US chemical corporations will be a game changer for the personal care and cosmetics industries and have staggering economic implications on a regional, national, and global scale.”

Timeline

According to a merger update published online by Dow, ROW Competition Filings are in process now. A shareholder vote on the deal is expected to take place in Q2 of this year, and the company anticipates that the deal will close in the second half of 2016.

“Each company’s planning teams are making progress to expedite synergy capture upon merger closing [and the] carve-out [of] financial work [is] underway,” explains the update.

Charles Kalil, general counsel for Dow, and Stacy Fox, general counsel for DuPont, are handling the closing. Jim Fitterling, COO at Dow, and Nick Fanandakis, CFO at DuPont, are charged with capturing synergies between the chemical companies. While Howard Ungerleider, CFO at Dow, and Linda West, vice president of corporate planning for DuPont, are at work on plans for the intended spins.

Saving and growing

As a single company, DowDupont will be the world’s second largest chemical company. (BASF remains the largest.)

And by merging, the chemical giant will see saving and growth thanks to synergies between the two businesses. Total cost synergies are projected at $3bn; while growth synergies will be $1bn.

The companies’ material science business, which comprises personal care, will contribute the most — $1.5bn — in cost synergies according to the Dow update publication. The specialty products division will also serve the personal care industry. Only $0.3bn in cost synergies are expected there.

When broken out by function, 40% of the new company’s cost synergies will come from cost of goods sold; 30% from selling, general, and administrative expenses; 20% from leveraged services; and only 10% from R&D.

All this will happen fast. “100% of run-rate cost synergies [will be] achieved within the first 24 months from [the] transaction closing,” according to Dow.

Combined finances

Dow is the acquiring entity so far as the SEC’s generally accepted accounting principles (US GAAP) are concerned.

And according to that company’s merger update, pro forma DowDupont net sales amount to $74bn. Operating EBITDA is $15bn with a 20% margin. Net debt is at $13.5bn.

The new dividend policy with be “consistent with current policies at both companies.” DowDupont will target an investment-grade credit rating.

Eventually the company will separate into three independent businesses: agriculture, material science, and specialty products. Planning is underway for each of those companies and for a tax-free separation strategy.