DuPont, Dow Chemical surge on merger talks

Shares of DuPont and Dow Chemical surged early Wednesday on reports the two industrial giants could combine and reconfigure themselves following heavy pressure from activist investors on both companies.

Dow member DuPont jumped 12.9 percent, while Dow bolted up 11.2 percent in late morning trade, helping to lift the broader market following news the two companies could merge into a chemical giant potentially worth about $120 billion.

A merger would beef up the companies' operating segments in pesticides and agricultural seed technology, as well as in industrial materials such as DuPont's Kevlar and Dow's Styrofoam brand building insulation.

The combined company could split into three separate publicly traded companies focusing on agriculture, specialty chemicals and traditional chemicals, according to two banking sources familiar with the talks.

A note from a Barclays said the deal would likely be "credit positive" for both companies based on news accounts so far.

The talks come on the heels of activist campaigns launched by Trian's Nelson Peltz at DuPont and Third Point's Daniel Loeb at Dow that prompted earlier moves to spin off low-return divisions and boost shareholder payouts.

RBC Capital Markets last week praised DuPont for having a "sense of urgency" in the face of consolidation in the agroindustry sector after Monsanto sought unsuccessfully to acquire Syngenta earlier this year.

Executives from Dow Chemical last month also vowed to participate in the consolidation wave in agriculture after selling off part of its chlorine business to Olin earlier this year.