BUSINESS
C&EN’S COMPANY OF THE YEAR A $130 billion deal makes DOWDUPONT the obvious choice ALEXANDER H. TULLO, C&EN NEW YORK CITY
C&EN’S CHOICE for 2015 Company of the
Year was to be the product of weeks of careful deliberation. We compiled a short list of firms that ought to be recognized for their noteworthy accomplishments. After much discussion, we winnowed the list down to a couple of final candidates. Then we threw it all out the window on Dec. 11, when Dow Chemical and DuPont announced they would merge. The obvious choice for Company of the Year since that day has been a firm that won’t exist until well into 2016: DowDuPont. The transaction is big. Not only that, it will remodel vast swathes of the chemical industry, including polymers, electronics, and agriculture, by creating formidable competitors in each of these fields. And although the transaction is being billed as a merger of equals, DowDuPont could represent the final chapter in the 213-year history of DuPont, the smaller of the two firms. To those watching the chemical industry, the notion of a Dow-DuPont merger has long been more of a punchline than a serious idea. Any time someone said “when Dow merges with DuPont,” it meant something like “when pigs fly” or “when hell freezes over.” They are two very different companies. DuPont dates back to 1802, when Eleuthère Irénée du Pont de Nemours established gunpowder mills on the banks of the Brandywine River in Delaware. The company has since played a central role in industrializing the U.S. It was an early backer of General Motors. It was one of the first companies to establish a professional R&D organization. DuPont’s researchers created household names like nylon, Teflon, and Kevlar—all of them “better things for better living through chemistry.” Dow Chemical is the upstart by comparison. Founded in 1897 as a bromine maker in Midland, Mich., it furnished the post-World War II American prosperity with materials such as Styrofoam, Saran wrap, and polyethylene. Over the years, it has helped push the
chemical industry toward greater scale and globalization. Dow’s chief executive officer, Andrew N. Liveris, had been putting the two companies together in his head for years, but DuPont CEO Ellen J. Kullman wouldn’t entertain the idea. Opportunity came in the form of Nelson Peltz, an activist investor who for the past two years had been trying to break DuPont up. Peltz attempted to install himself and three other directors on DuPont’s board at the firm’s annual meeting in May 2015. He was beaten back, largely by DuPont retirees and other individual shareholders. However, a bad earnings forecast at DuPont led to Kullman’s resignation in October. Edward D. Breen, the ex-Tyco CEO who had been appointed to DuPont’s board in February, took over and immediately began talking with Liveris about a merger. THE COMPANY they are putting together is
massive—some $130 billion in market capitalization and $83 billion in annual sales. Yet DowDuPont won’t be around for long. It will merely be a staging ground for the next step in a plan hatched by Liveris and Breen to dole out their businesses into three new entities: an agricultural chemicals and seeds firm, a materials science company, and a specialty products maker. The agriculture combination is the least surprising element of the merger and was probably one of the catalysts for discussions. With declining crop prices and weakness in emerging markets, agricultural chemical makers have been seeking to consolidate. Monsanto, the market leader, had already attempted an unsolicited $45 billion bid for rival Syngenta. Liveris and Breen both told analysts in
October that they were open to transactions in agriculture. They might already have been talking to each other about a bigger deal. Their two agriculture units complement each other about as well as any two businesses in the sector could. Dow’s business is mostly chemicals; DuPont’s is mostly seeds. DowDuPont will be balanced in both. Its $19 billion per year in agriculturerelated sales will put it about $4 billion ahead of rival Monsanto. But that might not last long. The Dow-DuPont merger will undoubtedly touch off deal discussions elsewhere in agriculture. A resurrected Monsanto-Syngenta deal would easily knock DowDuPont off its perch, as would a transaction between Monsanto and BASF or Bayer. The $51 million materials science company will look a lot like the old Dow but with the addition of DuPont’s polymers businesses. Liveris will have oversight of this company. It might even emerge having headquarters in Midland, retaining the Dow name in some way. “What we have been telling people right now is that Dow is going to be here in Midland,” Dow’s chief operating officer, James R. Fitterling, tells C&EN. The integration between Dow’s massive petrochemical operations and downstream polyethylene and elastomers businesses is preserved in the materials science firm. The acrylic acid and derivatives businesses that Dow acquired as part of its 2009 Rohm and Haas purchase are here as well. The DuPont polymers business makes ethylene copolymers and engineering polymers. It’s a major supplier of materials such as Bynel and Surlyn resins for multilayer packaging. Dow makes polyethylene and packaging adhesives. Dow appears to be doubling down on a market trend. More and more of the plastic packaging appearing on grocery store shelves is made of multilayered films that incorporate different materials, each imparting performance attributes such as oxygen impermeability or printability. DuPont’s engineering polymers business is a major supplier of resins including nylon and polybutylene terephthalate for automotive applications. Dow has a stake in the auto industry through products like its Betamate adhesives, used as an alternative to welding
“We are trying to make sure [the firms] are low cost ... but we’re not trying to starve the machine.”
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ents. He thinks the diversifed company could come under materials science company will literally be touching each other pressure to break up. in packaging. Two examples are shown here. “We can’t help but think that the DuPont name could be 160 headed the way of other iconic chemical names like Union Inner layer 140 Carbide, Imperial Chemical LLDPE Industries (ICI), and Rhône120 Poulenc,” he wrote. EVA 100 Reservations about the deal Inner layer are at a fever pitch in Delaware, 80 where people are worried that Surlyn Nylon 60 Dow will roll everything up Nucrel and move it to Midland or that 40 EVA LDPE the old DuPont will be downNucrel sized into nonexistence. “This 20 LLDPE Nylon is a loss which is almost incal0 Outer layer Outer layer culable, if it were to happen in its entirety,” former governor EVA = ethylene-vinyl acetate. LDPE = low-density polyethylene. LLDPE = Mike Castle told the News linear low-density polyethylene. SOURCE: Dow Journal of Wilmington. Such fears are already materializing. DuPont is quietly SPECIALTIES More than 30% of the specialty products disbanding Central Research firm’s $13 billion in revenues will come from electronic materials. & Development, one of the world’s most prestigious corTHE $13 BILLION specialty porate research organizations products business is the (see page 7). Photoresist, antireflective coatings, etchants most likely spin-off comThat move comes mere days Chemical mechanical planarization pads, slurries pany to launch under the after both DuPont and Dow Metallization materials DuPont name. Breen will downplayed cuts to R&D in oversee this business as well connection with the merger. Solar backsheet, encapsulants as the agriculture company. “What we don’t want to do Electronics packaging DuPont’s Breen has promis affect the future growth of Display materials ised that this company will these businesses,” Breen told SOURCE: Dow establish headquarters in analysts. Fitterling explained Wilmington, Del. to C&EN that the three spinThe specialty products company will unit, which developed a fermentation route off firms need enough R&D heft to help combine electronics materials businesses to 1,3-propanediol. maintain leadership positions in their fields. from both parents into a $4 billion franchise. DuPont’s safety and protection business “We are trying to make sure they are low Dow’s business, which originated for the is going to the specialty products firm as cost and they’re efficient, but we’re not trymost part with Rohm and Haas, is strong in well. Several of DuPont’s household names, ing to starve the machine,” he says. materials for chip production, particularly including Tyvek, Corian, Kevlar, and NoThe dismantling of Central Research the chemical mechanical planarization pads mex, reside in this unit. is technically part of the separate layoff of used to smooth out silicon wafers. These are all materials, and yet they were 10% of DuPont’s 54,000 employees, a move DuPont’s strength is in electronics areas not included in the materials science commeant to save $700 million annually. The other than chip fabrication. It has a strong pany. Tyvek, a polyolefin fabric that seals job cuts, it appears, aren’t the result of the business in materials for solar panels such houses from moisture, would complement merger but rather are meant to pave the way as encapsulants and metallization pastes. Its materials science products such as Dow’s for it. Tedlar polyvinyl fluoride film has become Great Stuff and Styrofoam. Perhaps peelDowDuPont is a no-brainer for Company the standard material for photovoltaic ing the safety and protection business away of the Year. But is the merger a good thing? backsheets. would have left the specialty products firm The two companies complement each other The other businesses in the specialty without needed critical mass. in important areas. Hedge and mutual fund products company will come from DuPont. The company will need all the cohesion managers such as Nelson Peltz like the deal. These include DuPont’s nutrition and it can get. Because the specialty products Dow and DuPont brass are looking forward health segment, largely made up of products firm is a looser collection of businesses than to it. But in the eyes of the rank and file of such as probiotics that came from DuPont’s the two other firms earmarked for spin-off, the two firms, chances are the deal looks a 2011 purchase of Danisco. The company will John Roberts, a chemical stock analyst with whole lot better from Midland than it does also house DuPont’s industrial biosciences UBS, called it “RemainCo” in a note to clifrom Wilmington. ◾
MATERIALS Polymers made by Dow and DuPont’s $51 billion
Thickness (µm)
in automotive structures such as the aluminum body of Ford’s F-150 pickup truck. The materials science company is also designated as the future home of Dow Corning’s silicones business. The same day that Dow disclosed its merger with DuPont, it also unveiled the $4.8 billion purchase of Corning’s half of the 72-yearold joint venture. Dow Corning is the world’s largest silicones company with about $6.2 billion in annual revenues. It also has headquarters in Midland. “Dow is uniquely positioned to access quick synergies,” Liveris told analysts. He thinks Dow could reduce Dow Corning’s costs by $300 million. And he expects additional earnings to stem from the companies’ shared presence in auto, personal care, and construction markets.
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