The Strategist

Dow Chemical and DuPont Ponder a Major Industry Deal

12/09/2015 - 14:13

The two largest US chemical manufacturer Dow Chemical and DuPont are in talks about a possible merger. If the deal goes through, the market will get a new player with a market cap of about $ 120 billion.

Two of the largest in terms of market capitalization US chemical companies - Dow Chemical and DuPont - are at an advanced stage of negotiations about a possible merger. Against this backdrop, shares of both manufacturers increased (by 4.3% and 3.6%, respectively), despite the negative dynamics of quotations at the main trading session on the stock exchange.

According to sources, the parties are considering option of a merger of equals as a priority. Both companies currently have a capitalization of more than $ 60 billion. This means that in case of successful negotiation and execution of transactions, a new player worth about $ 120 billion may emerge on the market. Current head of DuPont Edward Breen is expected to become the new company’s Director General and Andrew Liveris, who heads Dow Chemical now, will receive the post of chairman of board.

However, it is too early to talk seriously about the deal. Firstly, there is the possibility that the parties may not come to accommodation on the terms of the merger. Secondly, even their mutual consent cannot guarantee approval from the regulators’ side, which may block the merger of the two giants in the market. Given that the transaction involves the two largest manufacturers of industrial and agricultural chemicals, such a scenario may possibly come true.

Recall that last Monday, Dow announced another agreement on selling its portfolio of weed control herbicides, known as dinitroanilines, to a private company Gowan Company. The agreement was signed a month after the Dow announced that it is considering all alternatives for its agrochemicals and seeds division, which reported a decline in sales during the year.

The Company did not disclose terms of the agreement. The transaction is expected to be completed by the end of the year.

The agriculture sector is struggling to cope with falling prices for crops and lower demand for crop protection products, which hit sales of agricultural companies, including Dow, Monsanto Co. and EI du Pont de Nemours & Co.

Dow’s sale includes global product registration and trademarks of herbicides, including Treflan, sprayed on corn and cotton fields, as well as on some fruits and vegetables.

Dow’s competitor, Monsanto announced it was studying the possibility of consolidation in each sector of seeds and agrochemicals.

Monsanto, the largest seed company in the world, gave up trying to buy its rival Syngenta AG for $45 billion in August. Since then, almost all major players in the agrochemicals and seeds business are subject to talks about consolidation.