Merger to produce three independent, publically traded companies.
By now, everyone should have heard of the mega merger between Dow and DuPont. In an age of dot com start-ups that hyper-grow to million-dollar companies, it’s easy to forget that century-old industry heavyweights like these still exist.
Their merger into a combined company called DowDuPont, will create one of the largest industrial enterprises in the history of the world.
The combined market of the new firm will be about US$130 billion. The deal itself is an all stock transaction, with Dow and DuPont shareholders each owning approximately half of the combined company.
It’s a merger of equals and like all mergers produces redundancies and overlap. Eliminating these are predicted to save the combined operation about $3 billion and the firms expect another billion dollars in “growth synergies.”
But here’s where it gets really interesting.
The plan for the mega company is to split itself into three independent, publicly traded companies.
The first will be an agriculture company combining DuPont and Dow’s seed, pesticide and herbicide businesses. These reported over $18 billion in combined revenue in 2014.
The second company will focus on materials science. This will combine DuPont’s performance materials operation with Dow’s plastics, performance materials, chemicals infrastructure solutions and consumer products businesses. Dow’s electronic materials business will be excluded.
It’s a broad portfolio and combined, the two companies reported 2014 revenues in the segment of about $50 billion.
The third new unit will be a specialty products company. This will combine DuPont’s health and nutrition, bioscience, safety, electronics and communications operations with Dow’s electronic materials business. Combined, it’s a $13 billion business.
Advisory committees will be set up for each of the businesses until they can be formally launched.
The question we should all be asking about a deal like this is: who gains?
For shareholders, the intent is clearly to unlock value as in any corporate spinoff. The deeper question of course is overall will three operating companies be more profitable than one mega corporation? That’s less clear, as research and development will now be split between three entities with no market overlap.
Science can be serendipitous and without the traditional cross-pollination between research segments, particularly for the materials community to the manufacturing sector; will the three smaller operations be able to innovate? This remains to be seen, but the reality is that this corporate split has major tax advantages and dodges the monopolistic practices bullet, which surely made it easy for regulators to approve.
Will it work? With no way to put the pieces back together and no certainty that accounting practices will be 100 percent harmonized, there’ll be no way to tell. But on Wall Street, Christmas comes early in the form of big bonuses and fees generated from this deal.
