This Is Huge for The Dow Chemical Company
Chemical industry bigwigs E. I. du Pont de Nemours and Co. (NYSE:DD) and The Dow Chemical Company (NYSE:DOW) are in discussions to merge, creating one of the biggest chemical companies in the world. Here’s what investors in DOW stock and DD stock need to know.
The year 2015 has been a huge year for mergers and acquisitions (M&As), as companies across virtually all industries have moved to consolidate their businesses amid market uncertainties and survival threats. After the Dell–EMC deal earlier this year, the biggest in the technology industry, and the Pfizer–Allergan deal, the biggest in the healthcare industry, a DuPont-Dow merger could be the next big merger and the biggest in the chemicals industry. But will this deal actually go through?
The two companies jointly enjoy a market value of more than $125 billion and together, they could emerge as an unbeatable behemoth in the chemicals industry. The problem is that the companies will not only face regulatory approval from the U.S. antitrust authorities, but also the international regulatory bodies in regions where the two companies are active, including Europe and China. Earlier this week, U.S. and Canadian authorities blocked the merger between Staples and Office Depot on antitrust grounds, as the move would have created a powerful monopoly in the office supplies industry.
To avoid the antitrust laws, the only way the two chemical companies could go ahead with the merger would be to spin off parts of both companies—and that’s what the plan is, to merge and spin off certain businesses to create two or three new companies.
This brings us to the second question: what will be kept and what will be left behind?
DuPont has already announced a spin-off of its performance chemicals business earlier this year. After the merger, I foresee the two companies keeping the agrochemical segment and doing away with the specialty chemicals and materials segments. Post-merger, the two will emerge as the biggest agrochemical company in the world, beating smaller, but stronger, Syngenta AG (NYSE:SYT) and Monsanto Company (NYSE:MON).
Despite the fact that the agrochemical segment has performed poorly this year amid falling crop prices, the two companies will be able to make the most out of this segment once they join hands. Regardless, the ball will be in DuPont management’s court more than Dow Chemical’s.
Now, the downside is that DuPont’s management has often been criticized for corporate misdirection and mismanagement. Unjustified overheads have been a growing concern in the investor quarters. Following this deal, DuPont’s CEO, Edward Breen, who was recently promoted to a permanent, full-time CEO-ship from his interim position, will continue to lead the company, while Dow’s CEO, Andrew Liveris, will take the backseat as chairman.
This raises concerns for DOW stock, since the reins will mostly be in DuPont management’s hands. Seemingly, this “merger of equals” may not be equally good for both parties. The merger bodes well for DuPont, though, since it will be able to add wider managerial and operational scope to the company.
The Bottom Line on DD Stock and DOW Stock
The bottom line: one plus one equals three in this merger. The combination of two chemical giants could allow the combined companies to slash costs and raise prices, ending the move with three companies. If this deal goes through, shareholders are poised to make a fortune.