The Urethane Blog

Shareholders Approve Dow and DuPont Merger

Dow, DuPont approve merger; cuts ahead


A sign is seen at an entrance to a Dow Chemical Co plant in Plaquemine, Louisiana in this December 12, 2015 file photo. REUTERS/Jonathan Bachman

Shareholders of the DuPont Co., the multinational, $26 billion (yearly sales) industrial giant that traces its roots to a Delaware gunpowder mill founded by French immigrants in 1802,  voted today to combine with Michigan-based Dow Chemical Company, a larger firm whose shareholders also approved the deal.

Over the next two years, Dow DuPont plans to cut $3 billion in additional costs,  following earlier losses including 1,700 jobs in DuPont’s Delaware operations earlier this year.

The company will also execute a scheme led by DuPont boss Edward Breen and Dow chief Andrew Liveris to split into three successor firms:
— a materials company based at Dow headquarters in Midland, Mich.;
— a pesticide-and-seed maker based in Wilmington but run largely from offices and labs in the Midwest;
— a grab-bag of DuPont’s remaining businesses, at least some of which analysts expect will attract takeover offers from larger companies or investors.

The companies “are still awaiting key regulatory approvals” and could even draw a last-minute counterbid, notes Carol Levenson, analyst at Gimme Credit LLC, adding that the planned three-way split “makes little sense” and raises “numerous questions” about who will pay off the companies’ billions in borrowings.

The merger has also raised questions from farm-state senators and corporate customers who worry about reduced price competition, and plaintiff lawyers trying to sue DuPont and Dow for environmental and product claims.

While disruptive to DuPont employees, and maybe to customers, the cuts and rebranding could be lucrative for DuPont’s and Dow’s shareholders, who have held on through decades of failed investor targets and share underperformance.

Corporate raiders including Nelson Peltz (whose hedge fund, Trian, bedeviled DuPont) and Dan Loeb (Third Point, who went after Dow) have argued the companies have too much corporate overhead expense and have long moved too slowly to turn expensive scientific research findings into high-profit products.

DuPont has already consolidated from its Wilmington headquarters to smaller suburban offices, and reduced its central research, accounting and legal staff.

DuPont, the most valuable company in the U.S. in the 1950s, when descendants of its founding family controlled General Motors Corp. and other big DuPont customers, is still listed among the Dow-Jones 30 Industrials. But after years of pumping profits into share buybacks and dividends and disappointing acquisitions, it is now one of the smallest companies on that list.

The spin-offs and break-up mirror the way Breen, a longtime New Hope-area resident, made earlier fortunes for himself and other shareholders by disposing of his former corporate employers, Horsham-based General Instrument Corp. and Princeton-based Tyco International Ltd.

Even before Breen joined the board last year and, six months later, replaced engineer and DuPont lifer Ellen Kullman as CEO, DuPont has spun off a long series of  businesses, including Axalta, the Philadelphia-based car-paint company, and Chemours, a Wilmington-based chemical-maker.

Chemours, which owns ex-DuPont plants along the Delaware River in South Jersey and the Wilmington area, among other places, has warned that it is prepared to fight DuPont over the cost of settling toxic pollution claims for factories and products it inherited from its mother company, for instance in recent cancer lawsuit judgments targeting byproducts from DuPont’s former Teflon production facilities in West Virginia.