Wednesday, December 9, 2015

Dow, DuPont in merger talks to form one company, and then break up into 3 separate companies

Via @DrQualls on Twitter last night, I see that the Dow and DuPont are in talks to merge. From the Wall Street Journal (article by David Benoit, Dana Cimilluca, Dana Mattioli and Jacob Bunge):
Dow Chemical Co. and DuPont Co. are in advanced talks to merge, in what would be a combination of two of America’s oldest companies that together are worth nearly $120 billion. 
The chemical giants, which each have a market capitalization of about $60 billion, could announce a merger in coming days, people familiar with the matter said. It would be followed by a three-way breakup of the combined company, they said, a common approach to mergers and acquisitions of late. Dow’s Chief Executive Andrew Liveris is expected to be executive chairman of the new company, with DuPont CEO Edward Breen keeping that title. 
Terms of the deal couldn’t be learned, but some of the people said it would be billed as a merger of equals, meaning there wouldn’t be a big premium for either set of shareholders. A deal hasn’t yet been inked and the talks could fall apart, the people cautioned. 
Even if the two sides manage to agree, there is no guarantee antitrust regulators would bless the union or that the breakup plan would address any such concerns. The merger would combine two top suppliers of industrial and agricultural chemicals and crop seeds....
This is, undoubtedly good news for the financial wizards who will consult on this merger and the newly crowned CEOs. It's not good news for the future of corporate America, as this column by WSJ's Dennis K. Berman notes (ht anon) - if this is how huge conglomerates plan to make more profits (rather than reinvestment in capital and R&D), we are in serious trouble.

I can't imagine this is good news for the industrial chemists of America (and the world), either. I presume that there will be plant closures and R&D cuts to follow; I don't think it's a coincidence that, after the divestment of DuPont's fluorochemicals business to Chemours, Chemours has been busily laying people off and closing plants. I predict this means more mid-career chemists let go, slower wage growth for chemists, lower retirement and health benefits, fewer entry-level R&D positions for chemists at the new companies and lower starting salaries.

I hope I am wrong.

Best wishes to the employees of Dow and DuPont - and to all of us. 

21 comments:

  1. 1) The creation of Chemours seems like a ploy to purge DuPont of liabilities rather than a legitimate attempt to separate businesses (as in Tronox/Kerr McGee), with the best (*cough*) of the GSK transfer of RTP to Parexel in the bargain. I can't imagine why that's not going well for Chemours.

    2) It seems like business here has given up on the idea of getting money by doing something useful - apparently, that's for chumps. We want someone else to create our products and hand us the cash. We also want to have fewer and less expensive people working for us while we charge higher and higher prices for our products. It's like a Ponzi scheme with better PR.

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  2. 1) definitely--that was set up to fail, and fail big.
    2) It's a sad year for a company that's basically as old as this country--they already moved their offices and basically destroyed downtown Wilmington. But at lest Peltz can squeeze a little more profit out of his minority stake.

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    1. It seems to me that parent and sibling corporations should be responsible for the debts of their relatives for a long, long time after a split. It's ridiculous that a corporation can split in two, throw all the garbage on one side, and then have it declare bankruptcy and screw everyone over.

      Of course, I believe all executive pay going back ten years should also be on the table during bankrupcty proceedings, with a minimum of minimum wage (and of course, 19.9% interest and a $35 monthly late fee...what is good for customers is certainly good for executives!).

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    2. I don't believe for a second that spinning off companies will allow Dupont to spin off liability. It may make litigation more complex and difficult, but the liability will not go away. Google "Dupont Spelter smelter" and read about that story to see what I mean. Any lawyers here to pipe in?

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    3. I'm pretty sure Union Carbide still exists on paper for exactly this purpose.

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  3. As an employee of one of these fine establishments with a proud and rich tradition, I am really looking forward to the Holiday pitch-in this year.

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  4. Expect a press release early next week re cost and headcount reductions at Dupont. Although likely to impact all businesses, CR&D is going to be obliterated.

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    1. Anon, please e-mail me at chemjobber@gmail.com; confidentiality guaranteed.

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  5. I worked for Dupont for about 14 years... got laid off in the mid 90s. I was there long enough that I an supposed to get small pension at 65 from DuPont... I wonder if that is in jeopardy.

    While i did not work in Wilmington I did have to travel to a number of Dupont facilities (including the Experimental Station) and I have to say they were impressive!

    I never expected to read this type of news about Dow or Dupont... I guess nothing lasts these days...

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  6. Soon all industry will follow the "new" pharma model: become bloated, purge r&d, fail to bring anything new to market, buy smaller rivals and startups, take that IP, purge r&d . . . eventually, no one will want to fund/start new chemical companies. A return to school is sounding more prudent every day

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    1. Maybe not quite. If you have a great idea, why not own the IP, hire PhD scientists at $25/hr to make your idea work, and then you sell the idea (IP) to the big Pharm? You'll make a mint ! And you probably will rationalize in some fashion the fate of the people that worked for you got fired and are unemployed.

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    2. Hi anon, one stage which you left out relates to tax inversions...

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    3. The people that sell to big pharma will. Researchers will just be along for the ride hoping that the company their working at will be one of the lucky ones bought and they get enough out of it to keep paying the bills.

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  7. > I never expected to read this type of news about Dow or Dupont... I guess nothing lasts these days...

    Truly, but this is nothing short of catastrophic. Aren't there some national security issues around having sufficient industrial capacity?

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  8. Dowpont or Dudow are the news names I suggest.

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    1. Twitter has it: DuPow

      https://twitter.com/WesterveltCW/status/674729709033414657

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    2. It's official: DowDuPont. Also, Dow will buy Dow Corning.

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  9. We have been in serious trouble for a while now, ever since the pall of short-termism infected every brain cell of our society. I can't see how this kind of unholy fusion would do anything but hasten the infection and the consequent demise. Condolences and best wishes to those affected.

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    1. Maybe it's our suicide note to ourselves. Not how I was hoping to be remembered but...

      "If you can't be a good example, at least you can be a terrible warning."

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  10. DuPont is saying, "CR&D, now you don't!" I'm not Dow with this merger at all, but I guess the feelings and hardships of chemists are besides DuPont.

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