Dow Chemical, DuPont merge to create $130 bn industrial giant

Two of the oldest names in US industry, Dow Chemical and DuPont, announced Friday that they will merge to create the world's biggest chemical and materials company.

But the all-stock deal creating a business valued at $130 billion would hold only until the new DowDuPont splits into three separate, listed companies with sharper industrial focuses: agriculture, material sciences and specialty products.

Dow and DuPont said the combined company will generate huge savings and strengthen their competitive positions in a world economy beset with overcapacity and low commodity prices.

Until the three-way split, planned for 18-24 months after the merger is completed, it will put DowDuPont ahead of BASF, Germany's global chemicals powerhouse.

The deal also fends off pressure from Wall Street activists who have pushed both Dow and DuPont to generate better returns for investors.

The deal "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," said Andrew Liveris, Dow's chairman and chief executive officer.

"Over the last decade, our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities."

The transaction is billed as a merger of equals, although by revenues, Dow -- at $58 billion in 2014 -- is much bigger than DuPont, at $35 billion last year.

By comparison, BASF generated 74 billion euros ($82 billion) in sales in 2014.

By market valuation, though, the more profitable DuPont is slightly larger, $62 billion versus $61 billion for Dow.

Each has more than 50,000 employees worldwide.

- Venerable US industrial titans -

After the deal is closed -- envisioned in the second half of 2016 and pending antitrust review -- investors of each company will hold equal shares of the combined group.

Liveris will become executive chairman of the new company, while DuPont's chief executive Ed Breen will be his CEO.

The two companies are longtime blue chip stars of US industry.

DuPont was founded in 1802, and became the foundation for one of the country's greatest family fortunes.

Dow is a relative youngster, launched only in 1897.

Dow Chemical, known for its Styrofoam brand insulation products, is strongest in the plastics and industrial materials industries.

DuPont, creator of Kevlar, used in body armor, is strongest in agriculture and biosciences.

DowDuPont will be headquartered in both Midland, Michigan (Dow's home base) and Wilmington, Delaware (DuPont's home).

Breen told analysts that the two companies would fit together like "hand in glove" with little product overlap.

But the two companies say they expect to produce cost synergies of around $3 billion and approximately $1 billion in growth synergies. DuPont said it will cut staff by 10 percent following the merger.

"Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers," said Breen.

- Anti-trust issues -

The merger however triggered worries that it will give the company oligopolistic powers in areas like seeds for farmers and certain chemicals.

Senate Judiciary Committee Chairman Chuck Grassley said his committee will be studying the deal.

"DuPont and Dow are two titans of American industry and the proposed merger demands serious scrutiny," he said in a statement.

"Vigorous enforcement of the antitrust laws is imperative to maintaining an open, fair and competitive marketplace. I'll be listening to Iowa farmers and consumers about any concerns they may have with this proposal."

Wenonah Hauter of the NGO Food and Water Watch called on the Justice Department to block the merger.

"Just a handful of large chemical companies including Dow and DuPont already control most of the seed supply used to grow crops like corn and soybeans, as well as the herbicides that genetically engineered seeds are designed to be grown with," she said.

"Any merger that consolidates this market into fewer hands will give farmers fewer choices and put them at even more economic disadvantage."

Shares of both companies surged Wednesday when news of the looming merger first leaked out.

Profit-taking in an overall sinking market set in after the announcement Friday, putting Dow, at $53.69 in afternoon trade, down 2.2 percent for the day and 0.7 percent from a week ago.

At $70.60, DuPont was down 5.5 percent from Thursday's close but up 4.2 percent from a week ago.