Dow Chemical and DuPont eye $120bn merger

A $120bn (€109.3bn) mega-merger plan between Dow Chemical and DuPont is unlikely to have an immediate impact on Ireland because neither of the US chemical giants have major manufacturing facilities here, but the deal will be closely watched by pharmaceutical firms which have huge plants in Ireland.

Ireland imported €5.8bn of chemicals in 2014, mainly from Dow, which is the largest global producer of chemicals, and from Du Pont, the third largest global producer, a leading international trade consultant, John Whelan, told the Irish Examiner.

Europe’s share in the global chemicals market has been falling for years, having once accounted for a third of the world market, the continent now makes up just 19%, he said.

Dow and DuPont are struggling to cope with falling demand for farm chemicals, even as the companies’ plastics units have reported a rise in margins thanks to low natural gas prices.

The merger talks are likely to have been precipitated by shareholder pressure and weakening demand for crop-protection chemicals, and such a deal would have been unlikely even a few months ago.

Stocks of both companies jumped 12% yesterday.

The Wall Street Journal first reported on Tuesday that the companies were in advanced talks to merge to become a $120bn chemicals giant.

The newspaper said it planned then to split into three companies focussed on agriculture, speciality chemicals, and materials.

“I think a deal like this couldn’t have happened three to six months ago,” said Sachin Shah, a merger arbitrage strategist at Albert Fried & Co, noting the companies’ sluggish stock performance had made a deal more doable.

Dow chief executive Andrew Liveris said as recently as October that his company was not in the market for “big M&A [mergers and acquisition deals]”.

The deal, which Reuters sources and other media said would be presented as a “merger of equals”, would value DuPont’s stock at as much as $82 and Dow’s at as much as $68, trading firm Dragonfly Capital founder Greg Harmon said.

Reports of the potential deal comes a week before the expiry of a standstill agreement between Dow and Daniel Loeb.

Under that deal the activist investor was to refrain from publicly criticising the company for a year.

DuPont, similarly, faced pressure from Nelson Peltz to separate its agriculture, nutrition, and biosciences units from its building and safety materials divisions.