DuPont (DD) Agrees to $130B Merger with Dow Chemical, to Cut 10 Percent of Workforce

Shares of E.I. du Pont de Nemours and Company, also known as DuPont (DD) were trading off -2.55 or -3.42 percent to $72.00 per share in this morning’s premarket after the company announced it had agreed on a merger of equals with Dow Chemical (DOW), and that it would be laying off 10 percent of its workforce. DuPont stock closed at $74.55 per share, up +0.06 or +0.08 percent in Thursday’s regular trading session.

Wilmington, Delaware based DuPont was founded by a French immigrant in 1802 as a gunpowder manufacturer on the Brandywine Creek.
By the mid 1800s, the company had grown to supply half the gunpowder for the Union Army during the American Civil War. In the 20th century, the company developed a number of synthetics including, nylon, neoprene, Teflon, Kevlar, Lycra and Mylar to name just a few. The company is the world’s fourth largest chemical company based on capitalization and operates in 90 countries employing approximately 63,000 people.

Founded in 1897, Midland, Michigan based Dow Chemical Company is the world’s second largest chemical manufacturer by revenue and third by capitalization. The company has a presence in over 160 countries and employs approximately 52,000 people. Dow is a leading producer of synthetic rubber, plastics, chemicals, coatings, catalysts, crop technology, as well as crude oil and natural gas exploration and production.

The two companies announced the “merger of equals” early this morning as both boards of directors unanimously approved the definitive agreement, which would create a $130 billion chemical giant. The deal will be an all-stock transaction with the combined company to be named DowDuPont. The companies intend to separate the principal entity into three independent, publicly traded companies through tax free spinoffs within 18 to 24 months of the closing of the transaction.

The three companies will be divided into a Material Science company, an Agricultural company and a Specialty Products company. Each company will have an appropriate capital structure, scale advantages and focused investments to offer superior solutions and choices for clients. The merger is still subject to the customary regulatory approvals and could face some anti-trust issues with authorities.

Edward D. Breen, Chairman and Chief Executive Officer of DuPont said in this morning’s press release that, “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. Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each business will be a leader in attractive segments where global challenges are driving demand for these businesses' distinctive offerings.”

Andrew N. Liveris, Chairman and Chief Executive Officer of Dow stated that, “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.”

On a separate note, DuPont also announced a 2016 restructuring plan designed to cut as much as $700 million in costs from this year. The cost cuts include actions across the all of the company’s businesses and staff functions and will affect 10 percent of DuPont’s global workforce.

Shares of both companies traded sharply higher after reports of the possible merger on Tuesday, with both stocks gaining more than +12 percent earlier in the week. This morning’s premarket action has both stocks selling off after consolidating their previous gains.

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Published on Dec 11, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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