In December, Dow and DuPont, the world’s fourth and fifth largest chemical companies announced their plan to merge as DowDupont, with a combined value US $130B.
The merger will be officially voted upon by shareholders this July. If passed, DowDupont will become the second largest chemical company, controlling 41% of U.S. corn seeds and related genetics. But an approval is not a sure thing. This merger has been facing regulatory and public scrutiny that threatens its success.
Driven By Investor Pressure
The merger between Dow Chemical Co. and DuPont was likely a result of shareholder pressure, agitating for faster and bolder moves. A low demand on crop protection chemicals in recent years has made it harder for agribusiness companies to generate high returns for their investors and has resulted to excessive borrowing. This merger will be a combination of equals – shareholders of each company will own half of the new entity. The consolidation will merge DuPont’s seeds business with Dow’s chemicals capabilities that will create the biggest player in agriculture, will then split three ways: agrichemicals, with combined revenue of US $19B; materials science, with combined revenue of US $51B; and specialty products, with combined revenue of US $13B. These three divisions will be more focused and therefore will be able to navigate current challenges. Andrew Liveris of Dow will be named as Executive Chairman while DuPont’s Edward Breen will be the CEO of the combined company. The company’s headquarters will be in Michigan and Delaware, where the two entities are currently based.
What Lies Ahead?
The proposed Dow-DuPont mega-merger is still going through a regulatory review by the U.S Securities and Exchange Commission, but according to DuPont, the review will be completed by the end of June. But just before they get there, they must face public group scrutiny. Public interest groups have been urging the U.S Department of Justice (DOJ) to block the mega-merger as it is feared to create a “corporate cabal” that could give companies broader clout in the markets for seeds and pesticides. The Food & Water Watch (FWW) argued that it could curtail innovation, raise prices, and reduce cultivation choices for farmers, consumers, and the food system. The combined company would control 41% of the market for corn and 66% of the market for soybeans.
But company executives and analysts argued that in the end, this merger could leave new companies to better compete and thrive. It could also lead to innovative new products as companies develop traits that are integrated with their crop protection offerings. In addition, the merger could add jobs to Midwestern areas of the country.
If approved, we’ll see effects of the merger in coming years.