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Massive Merger: DuPont and Dow Agree to Terms

Corning said it will swap its stake in Dow Corning for $4.8 billion in cash and a stake in chip company Hemlock Semiconductor Group, a venture of Dow Corning.

DowDuPont will have annual sales of about $83 billion and pre-tax profits of $15 billion.

“This transaction is a game-changer for our industry”, Dow Chemical Chairman Andrew Liveris said in a statement. DuPont CEO Ed Breen, 59, will be chief of the new company.

However, DowDuPont won’t be around long. Adding to the complications are Dow’s and DuPont’s plan to split themselves into three separate companies.

DuPont will cut staff by 10 percent following the merger, Industry Week reports

DowDuPont expects to find synergies in eliminating duplication in the merged company’s research and development (R&D) programmes. “To the extent that they are happy with DuPont now, the employees, the business decisions made at DuPont Pioneer, could only probably improve to better focus on farmers as customers”, King said.

On the packaging front, DuPont announced back in November that it would combine its Packaging & Industrial Polymers business with its Performance Polymers business. DuPont completed a spinoff this year of its struggling performance chemicals unit into a separate company called Chemours.

The specialty products company, with a combined revenue of $13 billion in 2014, would sell materials to the electronics and communications industries, among others. The third business, selling seed and crop protection chemicals, generated adjusted revenue of about $19b. Another factor has been Monsanto’s bid for Syngenta, which was withdrawn in August.

The analysis contrasts with the large disposals that were seen likely necessary to enable the takeover of Syngenta that Monsanto attempted earlier this year, but was rebuffed by its Swiss peer in part on indeed on the concerns of the likely level of antitrust interference the deal would cause. The DowDuPont announcement may put pressure on other companies to combine. Combined pro forma 2014 revenue for Materials Science is about $51 billion. However, if the merger does go through, it is going to be a big challenge for the non-agro business entities to unlock synergistic value in the short term due to the mere size of the companies themselves and the number of varied industries they focus on.

DuPont’s safety and protection unit, which makes well-known brands such as Tyvek and Kevlar, is earmarked for this company as well. Most of these savings, which are above the already-announced $1.7 billion worth of cost reductions announced by the two companies, would come from the agriculture and material sciences businesses. The company will have dual headquarters in Midland, Michigan, and Wilmington, Delaware, where they are now based.

The deal, which is likely to face intense regulatory scrutiny, allows the new company – to be called DowDuPont – to rejig assets based on the diverging fortunes of their businesses that make agriculture chemicals and plastics. While the plan was hatched by the companies’ chief executives, they worked alongside activist investor Nelson Peltz, who… Dow welcomed board nominees backed by billionaire William Loeb a year ago, avoiding a similar battle.

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