Dow Chemical, DuPont said to be in late-stage merger talks

Deal may be valued at $120B, would create second-biggest chemical company in the world

NEW YORK— Dow Chemical Co. and DuPont Co., two historic giants of American industry, are considering a merger that would ultimately dismantle both companies along lines proposed by activist investors over the past two years.

With more than 300 years of combined history, the chemical companies are in talks to merge in a deal that may be valued at about $120 billion (U.S.). That would be the industry’s largest merger ever and the latest megadeal in a year of megadeals.

The talks follow a tumultuous period for both companies. DuPont’s former chief executive officer Ellen Kullman stepped down in October, about five months after winning a proxy battle waged by activist investor Trian Fund Management.

Dow CEO Andrew Liveris, who led the company’s recovery from near-insolvency during the financial crisis, has also faced pressure from an activist shareholder — Dan Loeb’s Third Point.

Adeal may be announced as soon as this week, according to people with knowledge of the matter who asked not to be identified because the information is private. After the merger, the company would break into three businesses — agriculture, specialty chemicals and commodity chemicals — because of regulatory and other issues, one of the people said. There’s no guarantee a deal will get done and talks may still fall apart, the people said. Shares of both companies jumped.

The transaction would combine two of the most storied names in U.S. industry and create the world’s second-biggest chemical company behind BASF SE, as well as the largest seed and pesticide company, surpassing Monsanto Co.

Representatives of both companies declined to comment.

DuPont and Dow, which have market capitalizations of $65.3 billion and $66 billion, respectively, have in recent months confirmed they were weighing options for their agricultural-chemicals businesses, both of which supply genetically modified seeds.

There’s been widespread speculation about potential deals in the industry as lower crop prices curb farmer spending, and after Monsanto’s bid for Syngenta AG, which was withdrawn in August.

It’s a “game of musical chairs going on between the ‘ag-chem’ companies,” Hassan Ahmed, an analyst at Alembic Global Advisers, said Wednesday.

The split following a Dow-DuPont merger would probably involve creating a company focused on agricultural products such as crop seeds and pesticides, another focused on specialty chemicals and a third that makes plastics and other commodities, according to New Yorkbased Ahmed. Total cost savings may be $3 billion to $4 billion, he said.

“It’s going to be a cost-cutting story as well as a sum-of-the-parts story.” Ahmed said.

Falling crude oil and feedstock prices have boosted profit margins for petrochemical producers, Anu Agarwal, Asia vice-president at Argus Media, said in an email. Bringing the companies together would enable them to “derive value from offering a large range of chemicals to global markets,” she said.

Any antitrust issues could be overcome with modest divestitures, according to Ahmed. Dow’s Liveris would be executive chairman of the merged company while DuPont CEO Ed Breen would retain that title, according to one source.

Making Breen CEO would fit well with his strength in breaking up companies, as he did at Tyco International Ltd., Ahmed said.

Shares of Dow rose 12 per cent, their biggest jump in six years, to close at $56.97 in New York, the highest price since at least1980, according to data compiled by Bloomberg. DuPont also gained 12 per cent, to $74.49.