Over the last week, a hundred or so people crammed into a law firm’s offices high in the General Motors Building in New York, drafting plans to merge Dow Chemical and DuPont.
Over the last week, a hundred or so people crammed into a law firm’s offices high in the General Motors Building in New York, drafting plans to merge Dow Chemical and DuPont.
Yet all the work of those bankers and lawyers in combining two industrial titans, with a shared history of more than three centuries, will ultimately go toward a much bigger goal: Breaking up the newly united chemical company.
As Dow and DuPont formally announced their merger, the two companies made clear that they intend to separate into three companies, a path expected to be littered with complex deals, thousands of job cuts and months of government scrutiny.
But the plan will follow a path that DuPont’s chief executive of two months, Edward D. Breen, has trod before, having previously broken up Tyco into three pieces. And it is the culmination of the dream of his counterpart at Dow, Andrew Liveris, who has long sought a huge deal to strengthen his own company.
Liveris wasted no time in calling his fellow chief executive after Breen was named DuPont’s interim chief in early October.
“When the board asked me to step in as CEO, Andrew called me that day,” Breen said in a phone interview. “I chuckled because I knew why he was calling.”
The two met the following Sunday and spent the afternoon discussing logistics. Liveris initially proposed merging and splitting into two companies, and Breen said three. Three it would be.
What the two devised is what they describe as a merger of equals, putting together DuPont, the 213-year-old inventor of Kevlar, with Dow, the 118-year-old maker of plastics and chemicals. Shareholders of each company are expected to own half of the newly combined business — to be called DowDuPont — while the combined corporation will maintain headquarters in both Wilmington, Delaware, and Midland, Michigan.
Liveris would become the executive chairman of the combined company, while Breen would become the chief executive.
Yet the new company, which garnered roughly $83 billion in pro forma sales last year, may not exist in its huge form for long. After the merger closes, which is expected to be during the third quarter next year, the business will be split up in 2018.
What will emerge are three business: one specializing in agricultural chemicals, with $19 billion in pro forma sales last year; one in plastics and other materials, with $51 billion in annual revenue; and a third in specialty products like those for electronics and nutrition, which would have about $13 billion in annual sales.
Of those businesses, agriculture has received the most attention. Once combined, the two companies would command about 25 percent of the agriculture market, according to Argus Research. Regulators may require minor divestitures, but nothing that should jeopardize the deal, said people briefed on the deal discussions, who asked for anonymity because the talks were private.
Farmers — the end customers of Dow and DuPont’s products, who are already worried about rising prices — could still feel an effect.
“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,” said Wenonah Hauter, the executive director of Food &Water Watch, a nonprofit organization, said in an emailed statement. “Any merger that consolidates this market into fewer hands will give farmers fewer choices and put them at even more economic disadvantage.”
Job reductions are expected to result from the merger, as well. Dow employs 53,000 people, while DuPont had 63,000 employees at the end of 2014.
The companies did not discuss layoffs in their announcement, but DuPont, in a separate statement, said it expected to record a charge before taxes of $780 million, consisting of roughly $650 million in employee separation costs. DuPont said 10 percent of its global workforce would be affected.
Both have operations on Kauai.
Dan Turner, spokesman at DuPont, said it was premature to comment on what impact, if any, it could have to operations there.
“It’s too early to comment on the impacts this announcement will have on the Kauai operations. Current operations remain normal,” he wrote in an email.
Earlier this year, DuPont Pioneer closed its Kekaha facility and laid off about 30 workers in a move company officials say will help streamline operations.
The closure came as a first step in the company’s plan to consolidate its Hawaii seed operations into one location in Waialua on the North Shore of Oahu, spokeswoman Laurie Yoshida told The Garden Island newspaper.
The company will continue to operate its 1,500-acre Waimea Research Center on Kauai, which employs more than 100 workers.
In all, the companies planned to strip away more than $3 billion in costs from the deal and say there are potential growth synergies of $1 billion.