The Dow Chemical Co., which owns Dow Automotive Systems, and DuPont announced today they will combine “in an all-stock merger of equals,” according to a statement from both companies. The combined company will be named DowDuPont. Management intends to split the new entity into three independent, publically traded companies approximately 18-24 months following the close of the merger. What does this mean for Dow Automotive?
Dow Automotive will fall under the yet-to-be-formed Material Science Company. Much is still unknown since the deal is in the early stages, but the merger is seen as positive, according to sources inside the Dow Automotive division.
The three businesses that the boards intend to separate are:
- Material Science Company: This unit will include Dow Automotive Systems. It will also house DuPont’s Performance Materials segment, as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions and Consumer Solutions (excluding the Dow Electronic Materials business) operating segments. The combined pro forma 2014 revenue for Material Science is approximately $51 billion, according to the companies.
- Specialty Products Company: The businesses will include DuPont’s Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications, as well as the Dow Electronic Materials business. The combined pro forma 2014 revenue for Specialty Products is approximately $13 billion, based on a statement from both companies.
- Agriculture Company: This unit will unite DuPont’s and Dow’s seed and crop protection businesses. The combined pro forma 2014 revenue for agriculture is approximately $19 billion.
Once the deal closes, the combined company will have a market capitalization of approximately $130 billion. Under the terms of the transaction, Dow shareholders will received a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares for each share. Each company will own 50 percent of the combined entity.
The transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals, and approval by both Dow and DuPont shareholders.
“This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders,” says Andrew N. Liveris, Dow’s chairman and CEO. “Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities—requiring each company to exercise foresight, agility and focus on execution. This transaction is a major accelerator in Dow’s ongoing transformation, and through this we are creating significant value and three powerful new companies.”
Once the deal is completed, Liveris will become executive chairman of the newly formed board of directors.
“This is an extraordinary opportunity to deliver long-term, sustainable shareholder value through the combination of two highly complementary global leaders and the creation of three strong, focused, industry-leading businesses,” says Edward D. Breen, chairman and CEO of DuPont. “Each of these businesses will be able to allocate capital more effectively, apply its powerful innovation more productively, and extend its value-added products and solutions to more customers worldwide. For DuPont, this is a definitive leap forward on our path to higher growth and higher value. This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies.”
After the merger closes, Breen will become the CEO of DowDuPont.
An advisory committee will be created for each of the businesses expected to be spun off. Liveris will lead the Material Science committee, which includes Dow Automotive. Breen will lead the Agriculture and Specialty Products committees.
Dow Chemical officials declined to offer further comment on the deal.
In a separate announcement, Dow announced it is restructuring the ownership of Dow Corning Corp. Dow will become the 100 percent owner of Dow Corning, which is currently a 50-50 joint venture between Dow and Corning.
To read the merger announcement, click here.
To read the investor presentation on the deal, click here.
To read the Dow Corning announcement, click here.