Dow Chemical and Dupont Consider Merger of Equals
A potential marriage of chemicals titans Dow Chemical and DuPont would draw intense scrutiny from regulators in the United States and other countries, but Wall Street welcomed the reported merger talks, lifting shares of both companies by 12 percent.
Dow rallied to a record and DuPont was on track for its biggest daily gain in seven years as investors expressed astonishment at a possible $130 billion combination of the longtime rivals.
A tie-up would merge two agricultural chemicals businesses and fold in DuPont’s seeds business, analysts said, bringing a close look from regulators. Farmers said they were concerned about higher prices for seeds and chemicals.
“I look at it like Pepsi and Coca-Cola merging, then splitting into syrup, bottling, and snacks & sundry businesses,” said Eric Linser of Avant-Garde Advisors, which owns DuPont shares. “I was blown away …when I saw the news break.”
The combined company could split into material sciences, such as plastics used in packaging and car engines, specialty products and agrochemicals, sources said, cautioning that plans were not final. Cost synergies could reach $3 billion, CNBC reported.
The Wall Street Journal first reported on Tuesday that talks were underway.
Both Dow and DuPont declined comment on Wednesday.
Cheap financing and lack of growth in many industries, including ag and chemicals, have led to more buybacks, higher dividends and acquisitions as a way to boast earnings, said Grayson Witcher, portfolio manager at Mawer Investment Management Ltd, which owns DuPont stock.
Shareholders said a likely driver in the deal was DuPont Chief Executive Officer Ed Breen, a corporate turnaround expert who broke up the Tyco conglomerate earlier this decade.
Dow shares closed up 12 percent to a record high of $56.97. DuPont, a Dow Jones industrial average component, jumped nearly 12 percent to $74.49 after reaching a session high of $75.72.
“It’s like a Christmas present,” said Jack Murphy, portfolio manager with Levin Capital Strategies, speaking of the stock’s rise.
But antitrust specialists warned of potholes ahead.
“It is eye-popping,” said Steven Bizar, an antitrust expert with law firm Buchanan Ingersoll and Rooney. “I would wonder whether it would be stopped or whether major, major divestitures may be required.”
Reports of the talks broke as the Federal Trade Commission and U.S. Justice Department either killed or filed lawsuits to challenge five deals in a month.
The Justice Department killed Electrolux’s bid to buy General Electric’s appliance business, while Chicken of the Sea, owned by Thai Union, abandoned a bid to buy Bumble Bee Foods under pressure from the department.
