American chemical giants Dow and DuPont have agreed to a historic merger, representing the largest deal to ever occur in the chemicals industry. The merger is the first step towards creating three new businesses, and it will create $3 billion in cost savings for the companies. Dow and DuPont had been working on this deal since last February.
The newly formed company will be called DowDuPont, and it will be worth $130 billion. The corporation will feature products from both Dow and DuPont, and it will be a powerhouse in the fields of agriculture, commodity chemicals and specialty products. Each of those three fields will be conducted as a separate entity for the new company.
The new company will be owned equally by current shareholders of both Dow and DuPont. Dow CEO Andrew Liveris will serve as the executive chairman for DowDuPont, while DuPont CEO Ed Breen will be the company’s CEO.
For every Dow share that is owned, investors will receive one share of DowDuPont. Each share of DuPont will become 1.282 shares of DowDuPont. The company will maintain dual headquarters in Midland, MI and Wilmington, DE.
Eventually, DowDuPont will be broken up into three separate publicly traded companies through tax-exempt corporate spin-offs. These spin-offs will occur over 18 to 24 months following the completion of the merger, which is expected to be finalized in the second half of 2016.
Dow CEO Liveris said in a statement, “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.”
For now, the main goal of DowDuPont from a business perspective will be ensuring that the new company is not in violation of antitrust principles. The company will be forced to make modest divestitures over time. The product overlap of Dow and DuPont is not fully extensive, and it is likely that DowDuPont will emphasize its seeds and crop chemicals. The company will still face serious competition from rivals like Syngenta, Monsanto and Bayer.
The additional profits that will be enjoyed by DowDuPont are huge. In addition to saving $3 billion in expenses, the company will create new earnings of about $1 billion. Furthermore, Dow is planning to buy out Corning Inc., giving it full ownership of the joint venture Dow Corning Corporation.
Despite the historic deal, shares for the two companies both declined. Dow shares fell by 3.9%, and DuPont shares dropped by 5.8%. Analysts said that the deal seemed somewhat suboptimal, and that more savings could have been achieved. Nevertheless, the shares will most likely quickly recover once the ball gets rolling.