Dow Chemical and DuPont, two of the biggest and oldest companies in the American chemical industry, are in talks to merge in what would be one of the largest transactions in a year full of huge deals, people briefed on the matter said on Tuesday. Under the terms being discussed, a merger of the two companies, each with a market value of roughly $60 billion, could eventually be followed by a breakup of the company, two of these people said.
Combined, the two companies would be the second-biggest chemical company in the world, in terms of revenue, after BASF of Germany, with more than $92 billion in annual sales. The next step being discussed would be to break up the merged company into three businesses: agricultural chemicals, specialty products, and materials like plastics. An announcement could come soon, these people added, while cautioning that talks were incomplete and could still collapse.
Each company has come under attack from activist investors unhappy with its financial performance. Last year, Dow settled a brief but bitter dispute with Daniel S. Loeb, the billionaire who runs the hedge fund Third Point, by adding four independent directors. And this May, DuPont, formally E.I. du Pont de Nemours & Company, successfully fended off a board challenge by Nelson Peltz, dealing the billionaire financier his first loss since he opened his current firm, Trian Fund Management, a decade ago.
Bloomberg reports that a mega-merger between Dow Chemical Co. and DuPont Co. stands to have far-reaching consequences for European rivals, prompting a series of follow-on combinations as the pesticide and seed makers scramble to face the emergence of a US giant. The focus in Europe on Wednesday quickly turned to Switzerland’s Syngenta AG, which almost four months ago fended off a $46 billion bid from Monsanto Co. Last month, people with knowledge of the matter said China National Chemical Corp. was initially rebuffed in an approach to buy the world’s biggest producer of pesticides in what would be the largest acquisition ever by a Chinese company.
A Dow and DuPont merger “makes it more likely that Monsanto re-approaches Syngenta,” Bernstein analysts including Jonas Oxgaard wrote in a note Wednesday. The bid could be at 485 Swiss francs, more than the 470 cash-and-stock offer withdrawn in August.
Warren Buffett will also be watching the merger talks closely. Mr. Buffett’s Berkshire Hathaway owns a big slug of preferred shares in Dow Chemical. Berkshire got the shares in 2009, when Mr. Buffett’s company gave Dow $3 billion to help finance its purchase of chemical maker Rohm & Haas Co. In return, Berkshire received preferred stock that pays an 8.5% annual dividend.
Alan Murray with Fortune says the merger is not good for America, “Unless you are an investment banker, it’s hard to feel good about the deal to merge Dow and DuPont, two storied American science companies with 330 years of history between them. The plan is to combine the two $60 billion companies and then break them apart again, creating three more ‘focused’ companies in agriculture, materials science, and specialty products.”