DuPont, Dow Chemical to merge, then form 3 companies; layoffs expected

Dow Chemical (DOW - Get Report) and E. I. DuPont de Nemours (DD - Get Report) on Friday announced plans to merge the two iconic businesses into a chemicals giant valued by the market at about $130 billion.

"Overall, this transaction represents a tectonic shift in an industry that has been evolving over the last many years", said Dow chairman and CEO Andrew Liveris, calling the merger a seminal event for employees and customers of the two companies, which have a combined workforce of more than 110,000 people. In conjunction with the proposed merger, which is subject to regulatory approval, both companies are taking separate restructuring steps.

Material Science Company: A pure-play industrial leader, consisting of DuPont's Performance Materials segment, as well as Dow's Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions (excluding the Dow Electronic Materials business) operating segments.

Dow closed on December 10 at $54.91 while DuPont closed at $74.55.

Dow shareholders would own 52 percent of the new company after preferred shares are converted while DuPont investors would own the remaining 48 percent, the companies said.

Dow Chemical and DuPont said that the creation of the world's biggest agrichemicals and seeds company, stemming from their $130bn merger, would be created with the only minor risk of the concentration of market powers which trigger antitrust concerns. Combined pro forma 2014 revenue for specialty products was an approximately $13bn.

Following the closing of the transaction, DowDuPont will be dual-headquartered in Midland, Michigan, and Wilmington, Delaware.

"We will gain significant synergies through seed production cost efficiencies by maximizing the R&D programs of the two companies and through the optimization of our production and supply chains", DuPont CEO Ed Breen, who will become CEO of the combined DowDuPont, told investors Friday morning. Combined pro forma 2014 revenue for material science was about $51bn. He noted the two companies' cultures differ, with DuPont more "research and growth-driven" and Dow focused on tight cost controls and reasonable innovation. Mr. Breen said pursuing a merger was helped by the companies' nearly equal market value.

The agriculture business - which will combine a DuPont unit best known for its Pioneer seeds with a Dow Chemical division more weighted towards agrichemicals - will rank as the world leader in the sector, with sales of $19bn.

Here are key points of the deal between two of the biggest and oldest US chemical producers, which had both faced pressure from activist shareholders to create more value.

Critics of the deal may say that this merger is protective in nature, created to pacify activist ventures such as Nelson Peltz, who has a large stake in DuPont, and Daniel Loeb, who has a stake in Dow Chemical.

The New York investment firm said it was approached by the companies to "assist in negotiations", including on structure and governance of the combined entity and the planned spinoffs. Liveris will take the title of executive chairman of the DowDuPont board of directors.

Dow now has manufacturing plants in South Charleston and in Institute West Virginia. About half of that growth is expected in the agriculture business, Fitterling said.

The agrichemical company is expected to generate $19 billion through the sale of seeds and chemical insecticides to the agricultural industry.