Dow and DuPont to merge

https://www.washingtonpost.com/news/business/wp/2015/12/11/dow-and-dupont-two-of-americas-oldest-giants-to-merge-in-job-dropping-megadeal/?hpid=hp_hp-top-table-main_dupont_dow_800am%3Ahomepage%2Fstory

by gotchange • 11 years ago

200 111 11 years ago

washingtonpost.com

tptacek2• 11 years ago

... but will then break up into three independent publicly traded companies, one focusing on agriculture, one on materials, and one on specialty products.

X-Istence• 11 years ago

2 years is going to be a long time... who knows if they would follow through on that aspect of it.

alecco• 11 years ago

Do you imply a single landline provider, a single mobile provider, and a single ISP wouldn't be considered a monopoly?

tptacek2• 11 years ago

I think I meant to imply that the combined company will then break up into three independent publicly traded companies, one focusing on agriculture, one on materials, and one on specialty products

dragonwriter3• 11 years ago

In none of those broad industries is Dow-DuPont going to be a single provider, and it won't even be the leading one in all of them.

mattmaroon• 11 years ago

I wonder if that was required for FTC approval.

mtgx• 11 years ago

Great, so now you have not one, but three monopolies in various industries. This deal seems to be made mainly to get rid of its strongest competition in those industries.

mbesto• 11 years ago

That's some serious financial engineering there.

TheBiv2• 11 years ago

DuPont said it expects 10 percent of its 63,000-strong global workforce will be “impacted,” and the company is budgeting for $650 million in “employee separation costs.” Analysts also expect layoffs at Dow, which employs 53,000 worldwide.
Dow chief executive Andrew Liveris also called it a “seminal event for our employees.”

Seminal indeed.

saosebastiao• 11 years ago

$650M / 6300 ~= 100k per employee. Granted, not all of that will be allocated to severance packages, but even half of that would be a pretty phenomenal.

Bud• 11 years ago

...most of which will probably go to a handful of executives.

TheBiv2• 11 years ago

"About half of employers offering two weeks' salary for each year you've worked there."

http://money.cnn.com/2005/10/18/news/economy/annie/fortune_a...

cschmidt4• 11 years ago

Even $100k doesn't do much for you if you live in Midland, MI and just left the only chemical company in town. You'll have to move, probably out of state, and be competing with thousands of other newly unemployed folks chasing a few jobs in a mature industry. (Disclaimer: I grew up in Midland, and my family all worked for Dow.)

eitally• 11 years ago

$100k isn't what each employee will get. A lot of that will go to COBRA coverage and outsourced job placement services.

leroy_masochist7• 11 years ago

Given this press release was issued after the announcement of plans to merge, my guess is that it's pro forma for NewCo.

In other words, I think the denominator here is 10% * (63,000 current DuPont employees + 53,000 current Dow employees) = 11,600 people.

If that is in fact the case, then average severance would be a bit over $50k.

EDIT: Dow's current workforce 53k, not 58k.

baldeagle• 11 years ago

Aye, it does work out to about $100k per employee, but you have to remember that not all employees are equal in pay or severance. Applying a generous 70/30 rule (80/20 would be harsher), that is a lot of life changing for $30k for the bulk of the people.

tw04• 11 years ago

You're assuming half of it isn't going to VP+ level folks. Which is probably a bad assumption.

CPLX• 11 years ago

Seminal indeed.

At the risk of being gauche, one might consider "seminal event" a reasonable euphemism for "getting fucked"

metalliqaz• 11 years ago

The resulting 3 companies would be in separate industries, and therefore have no direct competition between them. Therefore, I would say that regulatory approval isn't certain. Probably it will be approved, but with a long list of caveats and provisions. Among them will no doubt be some environmental concessions that DowDupont would never bother following.

pbreit• 11 years ago

Just saw this on Twitter yesterday: "Over the long term, the future is decided by optimists."

fweespeech2• 11 years ago

"Why yes, sir, we'd like to be 3 separate monopolies please."

fennecfoxen• 11 years ago

While it's not certain, it's only forecast to be "17 percent of global pesticide sales and about 40 percent of America’s corn-seed and soybean markets."

Since the economics-textbook definition of the power of a monopoly is that they have power over prices, it's not entirely clear how monopolistic they will be in practice. Roundup Ready corn is nice (well, for farmers anyway) but if they raised the price too high farmers could always just switch to regular corn. And there exist alternatives to materials like Teflon and Kevlar as well.

wiremine• 11 years ago

Is there any precedent for this sort of merger/split? First time I've heard of this sort of arrangement, short of a government-mandated break up.

godzillabrennus• 11 years ago

Bubble deals are delightful. Time Warner and AOL merging marked the height of bad mergers in the last tech bubble. Since every trading company is now basically a tech company in disguise I wonder if this time around these mega deals will be seen as disastrous in the eyes of history.

ethbro3• 11 years ago

It marked the height of bad mergers only in hindsight. Big mergers are always hard, but that doesn't make them a bad idea.

I was looking for a summary of the internet and found this lovely video gem: https://www.coursera.org/learn/internetgiants/lecture/jCXgb/...

Click through the interstitial and you can watch the whole thing, which goes into mergers [relevant!] as well as AOL/TW particularly.

Needless to say, it was difficult to predict. In terms of the top websites by traffic cited in the lecture (and looked at by the FTC for monopoly review) you had (in decreasing order w/ unique visits per 1 month, units not mentioned):

AOL 61, Y! 52.7, MS 51.4, Lycos 30.8, Excite Network 27, Go Network 23, About 20.6, AltaVista 19.2, TimeWarner 15.9, Amazon 15.3

You've got a crystal ball if you could have looked at that, predicted the future, and said "Gee, joining up AOL with a media company is a really bad idea."

RyanZAG• 11 years ago

This kind of merger seems exactly what the regulatory system was designed to prevent, right? Have any recent mergers actually been blocked? Is the regulator completely toothless now?

jonknee• 11 years ago

Staples and Office Depot just had their proposed merger stymied by the FTC

http://www.wsj.com/articles/antitrust-suit-over-staples-offi...

jonwachob91• 11 years ago

GE selling it's appliance business to Electrolux AB. Technically the FTC didn't block it, but GE did back out before the FTC made their ruling. Most likely because the FTC was going to block it.

timdellinger2• 11 years ago

The combined company won't have a monopoly by any stretch: in the chemical space, it'll compete against the Germans (BASF, Bayer), and in the Ag space it'll compete against Monsanto.

dragonwriter3• 11 years ago

It might have pricing power, and hence a monopoly, in some more narrowly defined market than those broad spaces, though.

Cyph0n• 11 years ago

But doesn't the FTC look at US companies? If a merger results in a monopoly locally, isn't that enough to warrant denying it?

paganel• 11 years ago

it'll compete against the Germans (BASF, Bayer)

I wonder how come BASF and Bayer are still in business, post-WW2. From the wiki page of Carl Wurster (https://en.wikipedia.org/wiki/Carl_Wurster), the guy who re-established BASF in the early 1950s, out "of the ashes" of the infamous IG Farben:

Wurster retained links to those he had worked with as part of the Nazi war machine and on 6 February 1959 as chairman of BASF he hosted a reunion banquet for the veterans of the pre-1945 IG Farben Vorstand. The event was attended by Otto Ambros, Heinrich Bütefisch, Fritz Gajewski, Max Ilgner, Friedrich Jähne, Carl Krauch, Hans Kühne, Wilhelm Rudolf Mann, Christian Schneider and Fritz ter Meer as well as Carl Bosch's widow.[4]

All of those guys were Nazis, some of them convicted war criminals.

xxpor• 11 years ago

AT&T and T-Mobile was blocked.

asbromberg• 11 years ago

Staples / Office Depot, Time Warner / Comcast (not officially blocked but called off due to regulatory approval), T-Mobile / AT&T. Those are just some recent big ones I can remember off the top of my head.

theandrewbailey• 11 years ago

It makes me wonder how much harder it would be to end up with the three companies planned, but without a bigger company between now and then. It would involve creative shuffling.

robwilliams• 11 years ago

Why the hopeless reaction? Plenty of large companies have announced mergers recently and then backed off or been blocked by regulators.

shas3• 11 years ago

Among industrial companies like in the OP, GE, under Jack Welch, proposed to buy/merge with Honeywell in the late 1990s. It was shot down by regulators. http://www.economist.com/node/687696

kiriberty• 11 years ago

Wow, DOJ will be busy.

darkstar999• 11 years ago

Why DOJ? Wouldn't it be the FTC involved with this?

adventured2• 11 years ago

The FTC will be involved. The DOJ can step in and sue to try to stop mergers at their choosing. For example:

"Justice Department Files Antitrust Lawsuit to Stop Electrolux from Buying General Electric's Appliance Business"

http://www.justice.gov/opa/pr/justice-department-files-antit...

NittLion78• 11 years ago

Anyone else notice the headline was "jaw-dropping" but the URL was "job-dropping"?

jedberg• 11 years ago

No but that's hilarious. I wonder if it was intentional.

pvnick2• 11 years ago

Their innovations include a sweeping variety of now-ubiquitous chemicals, including ... chlorine

Really? That's impressive, to have invented an element. Surely this must be a method of storing and transporting chlorine and not the halogen itself.

_delirium• 11 years ago

Yeah, I'm not sure where they got that part. Besides obviously not inventing the actual element, neither Dow nor Dupont were the first to produce chlorine, nor even the first to produce it on an industrial scale. And they didn't invent the main process by which it's produced (chloralkali process). It's kind of a throwaway sentence in the article though, so I doubt much research went into it.

littletimmy• 11 years ago

Can't we stop this consolidation and keep the market competitive just by having a progressive corporate tax? Are there any arguments against such a tax?

pvnick2• 11 years ago

Can't we stop this consolidation

Why? Mergers are not inherently bad, and there seems to be a knee-jerk reaction against them without supporting evidence. Not to say that evidence doesn't exist, but it should if a merger is to be blocked.

golergka• 11 years ago

It seems that logic in the comments is quite simple: bad companies = evil. Not monopolies, just BigCo: the bigger, the badder.

Which is pretty logical, because while economical benefits of such companies are spread thinly among shareholders as well as global economies, the bad stuff they cause is always personal. So, regardless of whether good outweighs the bad or not (and I won't pretend that I know answer to that), individuals will always see them as something evil.

bbulkow• 11 years ago

We need the competition, I don't understand why as a society we would want a megacompany controlling the international chemical market.

Beltiras• 11 years ago

The Masters of the Universe deem it profitable.

ggchappell• 11 years ago

I don't understand why as a society we would want a megacompany ....

We probably wouldn't. But these are companies, not the government. They're allowed to do things we don't like.

Yes, there is antitrust law. The U.S. Government gets to rule on whether the merger is legal, but not whether it is good for society.

joslin01• 11 years ago

There's still international competition. Monopolies typically bring costs as low as possible for their consumers to block out competitors. This is a fairly positive net-effect. Theoretically, if a company was to get really bad PR then consumers would be OK paying more for their competitor and the great monopoly would show cracks and eventually break (unless it healed itself).

Yes we need the competition, but it's not so black/white otherwise no merge would go through.

hussong• 11 years ago

How would one monopolist price more competitively than a number of competing vendors?

Consumers need competition, producers avoid it where they can. Competition sucks from a producers perspective -- price equals marginal cost and profit is zero (in perfect competition).

giardini• 11 years ago

The two companies cultures are incompatible.

Dupont has an "employee-first" attitude that permeates the corporation and dates from its early years when the manufacture of gunpowder proved to be so risky. The Dupont family owners recompensed families of injured/dead employees by providing housing and supporting them for the remainder of their life. Safety became paramount in all operations. The attitude remains today. Despite the recent indiscretions in the LaPorte, Texas plant, Dupont is probably the safest chemical company on the planet.

If Dupont culture dominates, then this will likely prove a Renaissance for Dow. OTOH should Dupont culture be subjugated, it will ruin the value of the merger and we will all lose a company (Dupont) that has been possibly the best-run, most forward-looking corporation that has existed.

knz• 11 years ago

DuPont is "employee first"? https://theintercept.com/2015/08/11/dupont-chemistry-decepti... may be of interest...

filoeleven• 11 years ago

For those who aren't clicking without some context: DuPont has known since the 60s that C8, or PFOA[0], a chemical used in the production of Teflon, is harmful to humans even in tiny amounts. It has knowingly concealed and lied about the harm both to its employees and everybody else, and it has continuously released it into the environment while doing all that it can to avoid taking responsibility for the harms it has caused.

The linked article is the first in a series of three that take an in-depth look at the situation, the harms, and the lack of consequences for the company until now. I expect there to be more follow-up articles as there are some lawsuits now in progress with lawyers who are armed with internal documents showing that DuPont knew about the problems for decades.

[0] https://en.wikipedia.org/wiki/Perfluorooctanoic_acid

leroy_masochist7• 11 years ago

According to Dealbook [0], "The new company would have dual headquarters in Wilmington, Del., and Midland, Mich."

Dual headquarters usually works out about as well as co-CEOs.

To the point of DuPont having a great company culture, I agree. I used to cover them as an investment banker....they are definitely safety-obsessed.

[0] http://www.nytimes.com/2015/12/12/business/dealbook/dow-chem...

Nicholas_C• 11 years ago

What do you do now that you are no longer in banking?

hitekker• 11 years ago

I recommend also keeping track of who's in charge to determine what the new company will end up being.

Detailed example:

https://en.wikipedia.org/wiki/Time_Warner#AOL_Time_Warner_me...

steve-howard3• 11 years ago

Is it unusual to stage a merger like this with the explicit goal of splitting into three smaller companies in the near-ish future? If the company is planning on splitting, I would imagine the consequence of having two headquarters would be different.

RobertoG• 11 years ago

From the point of view of the owners, some of those old style, "employee-first", companies can't change their ways fast enough in order to improve profits.

I have seen first hand how one company used a merge as a excuse to change their culture. Some people, even speculated that this was the real reason for the merge.

If you are a majority stock holder, maybe a heir, you don't see the need in this times of weak unions, pro-business laws and cheap educated available labour of keeping your employees so happy.

I don't know anything about Dupont and Dow cultures, but if it is as you explain, you can bet what culture is going to dominate.

akg_673• 11 years ago

DuPont "employee-first" culture hasn't been true since 90s. The business challenges at DuPont and the executive succession in 90s killed that image. DuPont used to be dream company to work for most new ChE graduates. I worked at Dow in mid-90s. I still have friends at both Dow and DuPont in addition to being stockholders of both companies.

I doubt the merger will be approved by US, EU and possibly Chinese regulators without major concessions. The subsequent 3-way split in 18-24 months is just trying to appease the regulators to approve merger. If merger goes through, there will be no major player at least in specialty chemicals in US and most probably 3-4 major players in this segment worldwide. Other proposed segments have similar issues.

cynoclast• 11 years ago

No, DuPont does not have an employee first attitude:

https://theintercept.com/2015/08/11/dupont-chemistry-decepti...

https://theintercept.com/2015/10/08/dupont-found-liable-in-c...

https://theintercept.com/2015/08/20/teflon-toxin-dupont-slip...

https://theintercept.com/2015/09/19/teflon-toxin-goes-to-cou...

https://theintercept.com/2015/08/17/teflon-toxin-case-agains...

http://www.cnn.com/2015/09/15/opinions/lerner-chemical-c8-du...

As someone who lived in the area during the height of their contempt for people and the environment: FUCK DUPONT

elbigbad2• 11 years ago

As a former regulator of that sector, they were nearly as bad as BP, which was well known for a laundry list of violations long before Deepwater Horizon.

JumpCrisscross• 11 years ago

They're breaking into 3 companies after merging, so the cultures shouldn't need to be too mixed, in too many places, for too long. (Or so one hopes.)

http://www.wsj.com/articles/dupont-dow-chemical-agree-to-mer...

wyclif• 11 years ago

In Wilmington, Delaware here. I agree with this assessment. My Dad is a retired R&D scientist in materials for DuPont. Safety has always been treated with the utmost seriousness by the company. It was common for them to fire employees as early as the 1960s for failing to follow lab safety procedures. They are also famous for taking care of their employees.

calvinbhai2• 11 years ago

If "DuPont culture" mentioned in the comments is true, I hope they help Bhopal Disaster victims get the justice they deserve.

Bhopal Disaster happened because of Union Carbide(wholly owned subsidiary of Dow chemicals)

cschmidt4• 11 years ago

Just to be clear, Dow bought out the remnants of Union Carbide, after they died post-Bhophal. It didn't happen as part of Dow. Dow is extremely safety conscious, and the inexcusable things Union Carbide did would never have happened in a Dow plant.

calvinbhai2• 11 years ago

Not denying this. Probably the lawyers ensured there exists no culpability on the buyer, for UC's past sins.

But, Dow, and now DuPont morally owe a lot, to the Bhopal Gas Disaster victims.

induscreep• 11 years ago

Not to mention the C8 fiasco in WV, courtesy DuPont.

xixi77• 11 years ago

Looking at the stock chart in the article, "cool reaction from investors" they mention is a downward adjustment reversing most of Wednesday gains, but still putting each company above Tuesday close.

Was there another announcement Tuesday night, that set hopes high, with this one being a disappointment? What was the new information -- something about the structure of the new company perhaps?

Edit: Wednesday's article: http://www.nytimes.com/2015/12/09/business/dealbook/dow-chem... -- mentions the future split into 3 companies; does not mention the layoff details or dual headquarters though :)

theophrastus• 11 years ago

Farmers, or their lobbyists, would be well-advised to get very busy pressuring congress to block this. If Dow and DuPont successfully merge the control of major seed will be down to two mega-corporations; the other being Monsanto. Future prices and controls will become even less favorable for farmers. A quote from a CEO I knew: "Mergers benefit at most one CEO and a minority of stock-holders -- everyone else involved suffers, employees especially"

jawns• 11 years ago

Delawarean here!

DuPont is one of my state's largest private-sector employers, and beyond that, the Dupont family's influence on Delaware is hard to overstate.

Here are a few stories from my former employer, The (Wilmington, Del.) News Journal, about the merger, touching on its potential effects on the state:

http://www.delawareonline.com/story/news/2015/12/11/dupont-a...

http://www.delawareonline.com/story/money/2015/12/10/under-d...

By the way, did you know that DuPont's longtime CEO Ellen Kullman resigned just a couple of months ago?

http://investors.dupont.com/investor-relations/investor-news...

Her exit came after winning a proxy battle led by activist investor Trian Partners:

http://www.forbes.com/sites/antoinegara/2015/10/05/ellen-kul...

Trian, led by Nelson Peltz, wanted to break DuPont into pieces, and Peltz said that even though he lost the proxy battle, he wasn't finished with DuPont:

http://www.usatoday.com/story/money/2015/07/15/nelson-peltz-...

It's hard to imagine that the timing of the merger so soon after her departure is coincidental.

Sounds like Kullman won the battle but not the war.

AstroJetson2• 11 years ago

And with the layoffs that already took place during and after the Chemours spinoff, this new round will really hurt the Delaware economy. Sad to see a great company start to die in the 90's and after three decades of bad management end up like this. At least the earlier DuPont family left things like Longwood Gardens, Winterthur, EI DuPont Childrens Hospital , etc. Chad and Ellen's legacy is 1000's of shattered families.

necessity• 11 years ago

Fun fact about Dow:

In 1905, German bromide producers began dumping bromides at low cost in the U.S. in an effort to prevent Dow from expanding its sales of bromides in Europe. Instead of competing head on with the German producers, Dow bought the cheap German-made bromides and shipped them back to Europe, undercutting his German competitors.*

A fine example of "predatory pricing" gone wrong (which happens more often than not).

* https://en.wikipedia.org/wiki/Dow_Chemical_Company#cite_note...

anon1mous• 11 years ago

Dow and DuPont have been loosing a lot of customers to BASF in the last 5 years or so. Especially in the area of nano materials.

timdellinger2• 11 years ago

Dow sells nano materials? There's a market for nanomaterials??

ClayFerguson• 11 years ago

So we can expect the price of glassware and plastics to what, at least double right? Capitalism. Gotta love it. If you're rich.

Dow and DuPont to merge

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