A milestone merger capping a banner year of M&A activity, the Dow Chemicals-DuPont deal—if it happens—has many analysts speculating on the possible structure of the combined company and its impact on the global stage.
If the deal goes through, the smart money is on a breakup of the company into two or three businesses to allay regulatory concerns, especially on the agro-sciences side. "DuPont and Dow, which have market capitalizations of about $58.4 billion and $59 billion respectively, have in recent months confirmed they were weighing options for their agricultural-chemicals businesses, both of which supply genetically modified seeds," writes BloombergNews. "There's been widespread speculation about potential deals in that industry, as lower crop prices curb farmer spending."
The combined company could split into material sciences, such as plastics used in packaging and car engines, specialty products and agrochemicals, sources told Reuters. Cost synergies could reach $3 billion, CNBC reported. Analyst Eric Linser of Avant-Garde Advisors, quoted by Reuters, likened it to "Pepsi and Coca-Cola merging, then splitting into syrup, bottling, and snacks & sundry businesses."
Among the potential merger's far-reaching implications are a European chemicals scramble, according to BloombergBusiness. For one thing, it may prompt Monsanto to re-approach Syngenta AG. It fended off a $46 billion bid from Monsanto earlier this year, but the prospect of a Dow-DuPont merger changes everything.
As for other assets that a combined company would have to sell off, BloombergBusiness, quoting analyst Martin Schreiber, notes that Swiss specialty chemical maker Clariant could make a strategic asset swap with its plastics and coatings business. It adds that Clariant is separating out the pigments and plastic resins business starting in January.
Several commentators have noted that, while Dow and DuPont have many similarities, there are also some gaping differences, notably in R&D spend. DuPont pumps 30% of sales revenue into R&D, says Jason Miner on a BloombergNews video report, while Dow's percentage is one-third of that. "DuPont will bring innovation to this [deal] and bolt it on to some great engines of high-volume commodities," predicts Miner.
Predictions and speculation are all we have to go on right now, of course. But that could all change, as could the entire global chemicals industry landscape, within a matter of days.