Two of the largest chemical companies in the world want to merge. Dow Chemicals (DOW.N) and DuPont (DD.N), both global behemoths, are quietly talking about a deal to create a new company worth $120 billion.
Dow Chemical’s stock price jumped 8.3 percent in pre-market trading to $55.11, while DuPont also went up to $73 as investors heard the merger news. At the close of business Tuesday, Dow Chemical’s market valuation stood just under $59 billion, whereas DuPont’s was just over $58 billion.
Known for his expertise in turning around flailing companies, Chief Executive Edward Breen took DuPont’s highest position in October. Amidst scandal involving the former CEO, declining earnings, and a stock price that has fallen nearly 10 percent, Breen is looking for options. These include looking for a possible deal with a competitor.
Meanwhile, Dow’s stock price is up 12 percent for the year and has been on the hunt for a merger deal. According to sources close to the company, Dow Chemical CEO Andrew Liveris contacted Breen soon after he took the top spot at DuPont. Liveris wanted to find out if a deal between the two chemical juggernauts could be a possibility.
A merger of Dow and DuPont would create the second-largest chemical company in the world, behind Germany’s BASF SE. The deal would also make them the biggest seed and pesticide company, surpassing Monsanto Co., which currently holds that rank. The new company would control 17 percent of the world’s pesticide supply and 41 percent of the U.S. corn seed business, according to a news report from the Wall Street Journal.
Once the two merge, the new company will have an estimated $90 billion in combined sales and dominate the plastics, chemicals, and agriculture industries. It is probable that Liveris will be named the CEO of the new company and Breen would keep his position with DuPont.
Such a merger will most likely make antitrust regulators uncomfortable and numerous hurdles will have to be dealt with. To get the merger approved, sources say Dow and DuPont will propose to spin off parts of the newly-formed company to pacify any regulatory concerns and keep the marketplace competitive.
As grain prices and farm incomes have been sliding lately, discussions of mergers by companies within the agricultural sciences industry have increased. Earlier this year, DuPont wanted to buy seed giant Syngenta AG. Monsanto Co. also tried to buy Syngenta for $45 billion, but a deal never finalized.
In a previous Inquisitr report, a different type of deal was brewing between DuPont and rival Monsanto. In a proposal worth $1.75 billion, DuPont wanted to acquire new GMO seed technology from Monsanto, while Monsanto would gain access to a DuPont’s customer base. The companies have been at odds for years, and the deal was an attempt to make peace between the competitors.
Yet, a deal like the one being proposed between Dow and DuPont will be the biggest the chemical industry has ever seen.
Dow Chemical and DuPont are two of America’s oldest companies, both founded in the 19th Century. The founders of each company came to America in the 1800s looking for opportunity.
Escaping the French Revolution, E.I. du Pont settled in America and started making gunpowder using a mill on the Brandywine Creek, near Wilmington, Delaware. Soon after, in 1802, the French entrepreneur formed the company now known as DuPont.
The company continued to grow and soon became the largest gunpowder supplier to the U.S. government. Today, DuPont is a “global science company” employing more than 60,000 people around the world.
In 1897, Herbert Henry Dow started Dow Chemicals in Midland, Michigan. The Canadian-born chemist invented a new method for removing and processing bromine that was trapped underground.
Within 20 years of forming the company, Dow was a major player in the production of chemicals, specifically for agriculture. Now the company, through numerous subsidiaries, has a presence in over 160 countries and produces everything from plastics, pesticides, and Styrofoam.
Neither Dow Chemical nor DuPont have commented on the merger talks. Details of the meetings have not been released, and any potential deal may still fall apart. However, some sources indicate that an agreement should be reached within a few days. Stock prices of both companies will surely continue to swing until more news becomes available.
[Photo by Jeff Fusco/David McNew/Getty Images]