Dow Chemical and DuPont are in advanced talks about merging the two chemical and agrichemical giants into an entity that would have a combined value of approximately $120 billion, according to the Wall Street Journal. The potential deal would merge two of the world’s largest agricultural chemical, crop seed, and industrial companies and would ‘fold in’ DuPont’s seed business. The resulting company would have a leading position across multiple segments from agriculture to plastics and would have combined sales of $90 billion.
Sources familiar with the ongoing talks said a merger would be followed by a three-way split of the resulting mega-company into material sciences, including plastics for automobile engines and packaging, agrochemicals, and specialty products, according to Reuters.
As pressure mounts from lower commodity prices, both companies have been acting to restructure, trim down, and focus on units with the fastest growth potential. And this potential deal could intensify this momentum through the establishment of three separate businesses according to sources, reports the Wall Street Journal.
But a deal of this magnitude is bound to face intense scrutiny from the U.S. Department of Justice, which pressured Thai Union to abandon its bid to acquire Bumble Bee Seafoods only days ago, and industry players. Peter Carstensen, professor of anti-trust law at University of Wisconsin Law School, said “I would think that the ag chemical combination is the … most problematic,” reports Reuters. While American Farm Bureau Federation (AFBF) chief economist, Bob Young states, “Our membership will be very concerned about further consolidation in the ag supply space.”
Despite this, and that the deal is not finalized, the news sparked a positive reaction on Wall Street, seeing shares of both companies climbing by 12%.
If a merger of the two century-old companies happens, it would be one of the largest within a year noted for its large deals. So far, 2015 has seen takeovers worth $4.35 trillion, surpassing the value record set in 2007, according to Dealogic.
DuPont accounts for approximately one third of all corn and soybean seeds sold in the U.S. market, while Dow accounts for approximately another five percent, causing concern among farmers, famer organizations, and anti-trust watchers. A combination of the two company’s agricultural business would see 2016 earnings before interest, tax, depreciation and amortization (EBITDA) of $4.1 billion, including ten percent in savings, according to equity analyst with Jeffries, Laurence Alexander, noting that the merger would create a company positioned to better compete if Monsanto eventually acquires Syngenta.