Dow Chemical and DuPont, the two largest US chemicals companies, have agreed a $130bn merger of equals, to be followed by a break-up into three separate businesses.
Dow Chemical and DuPont, the two largest US chemicals companies, have agreed a $130bn merger of equals, to be followed by a break-up into three separate businesses.
In an announcement the two companies said they expected the new company, to be called DowDuPont, to generate cost savings worth $3bn a year.
The companies said the cost savings would add $30bn to the merged group’s market value, which was about $130bn based on the Dow and DuPont share prices on Thursday night. The combined group would have net debt of about $18bn.
Andrew Liveris, chief executive of Dow, and Edward Breen, his counterpart at DuPont, conceded that there would be substantial job cuts following the deal but they did not disclose an exact number. “There will certainly be lay-offs; we don’t know the details yet,” Mr Breen told the Financial Times.
The plan is expected to face scrutiny from antitrust regulators in the US and around the world, and could raise concerns among some shareholders.
However, the activist investors at Dow and DuPont that have been pressing for restructurings both backed the deal, according to the companies.
Mr Breen said Nelson Peltz, founder of Trian, which has a 2.94 per cent stake in DuPont, signed a non-disclosure agreement that allowed him to participate in the merger negotiations.
“He very much endorsed the deal, as he quickly realised that this was the best opportunity for the two companies,” said Mr Breen. Trian confirmed it had been involved in the talks and supported the deal.
Mr Liveris said Daniel Loeb, founder of Third Point, which has a 2.03 per cent stake in Dow, was not directly involved in the merger talks.
But he added that the two directors selected by Third Point for the Dow board had voted in favour of the deal. “That should tell you a lot,” he said.
Third Point declined to comment. Under the terms of an agreement with Dow reached last year, Mr Loeb is prevented from commenting on the company. That agreement expires on Monday.
Mr Breen and Mr Liveris said that the activists recognised that the merger and subsequent split was in the best interest of shareholders. They also said that they did not expect any serious antitrust problems because there was little overlap in the two companies’ businesses.
Under the merger terms, Dow and DuPont shareholders will each own about 50 per cent of the combined group, based on an exchange ratio of one DowDuPont share for every Dow share, and 1.282 DowDuPont shares for every DuPont share.
The merger includes jobs for both top managers. Mr Liveris is due to be executive chairman of the combined group, with Mr Breen as its chief executive.
DowDuPont also intends to maintain two head offices, in Dow’s home town of Midland, Michigan, and in DuPont’s of Wilmington, Delaware.
The proposed break-up of the combined group would create three more focused businesses: one in seeds and crop protection, one in materials such as plastics, and one in speciality products and chemicals.
Dow was advised by Klein and Company, Lazard, Morgan Stanley and Weil, Gotshal & Manges. DuPont was advised by Evercore, Goldman Sachs and Skadden, Arps, Slate, Meagher & Flom.
