Dow Chemical Co and DuPont Co, two of the biggest and oldest companies in the US chemical industry, are in talks to merge in what would be one of the largest transactions in a year full of huge deals, people briefed on the matter said on Tuesday.
Under the terms being discussed, a merger of the two companies — each with a market value of about US$60 billion — could eventually be followed by a breakup of the company, two of these people said.
Combined, the two companies would be the second-biggest chemical company in the world, in terms of revenue, after BASF SE of Germany, with more than US$92 billion in annual sales.
Such a deal, which would face regulatory approval in several countries, would allow the two US companies to rejig their assets based on their diverging fortunes.
The next step being discussed would be to break up the merged company into three businesses: agricultural chemicals, specialty products and materials, like plastics.
An announcement could come soon, these people added, while cautioning that talks were incomplete and could still collapse.
Dow and DuPont — the former founded in 1897 as a bleach producer in Michigan, the latter born in 1802 in Delaware as a gunpowder manufacturer — are among the best-known names in the chemicals business.
Dow has produced a slew of plastics and agricultural chemicals, while DuPont claims innovations such as Kevlar and Teflon.
Yet each company has come under attack from activist investors unhappy with its financial performance. Last year, Dow settled a brief, but bitter dispute with Daniel Loeb, the billionaire who runs the hedge fund Third Point LLC, by adding four independent directors.
And this May, DuPont successfully fended off a board challenge by Nelson Peltz, dealing the billionaire financier his first loss since he opened his current firm, Trian Fund Management LP, a decade ago.
In both cases, Loeb and Peltz have argued that the chemical makers they were targeting suffered from corporate bloat and missed financial earnings targets. The two companies argued that they were taking steps to trim excess costs and improve their operations, as well as buy back shares and increase stock dividends.
While it made its name in chemicals, DuPont has made big strides on the agriculture side of its business, especially in its corn seed technology. In addition to agriculture, DuPont’s portfolio includes electronics and communication, advanced materials, and safety and protection.
Dow Chemicals’ portfolio is split into two groups: specialty and basic chemicals. The company has been focusing more on specialty chemicals, which carry higher prices, whereas basic chemicals are more commoditized. Dow is also more exposed to the volatility of the energy market.
Since Dow settled with Loeb, its shares have stayed roughly flat.
Yet victory for DuPont did not necessarily please shareholders. Shares of the company have fallen about 11 percent since the company won its battle with Peltz.
In after-hours trading on Tuesday, shares of the two companies rose after the Wall Street Journal reported they were in talks.
Representatives from Dow and DuPont declined to comment.
“A deal like this will definitely be subject to close antitrust scrutiny by Chinese regulators — not just MOFCOM [China’s Ministry of Commerce], but many other government actors will be involved in the process. That doesn’t mean the deal will necessarily be prohibited,” said Angela Zhang, a lecturer in competition law and trade at King’s College in London.
More than US$4 trillion worth of deals have been since struck the beginning of this year, surpassing 2007 as the busiest year for acquisitions.
Additional reporting by Reuters
INVESTOR RESILIENCE? An analyst said that despite near-term pressures, foreign investors tend to view NT dollar strength as a positive signal for valuation multiples Morgan Stanley has flagged a potential 10 percent revenue decline for Taiwan’s tech hardware sector this year, as a sharp appreciation of the New Taiwan dollar begins to dent the earnings power of major exporters. In what appears to be the first such warning from a major foreign brokerage, the US investment bank said the currency’s strength — fueled by foreign capital inflows and expectations of US interest rate cuts — is compressing profit margins for manufacturers with heavy exposure to US dollar-denominated revenues. The local currency has surged about 10 percent against the greenback over the past quarter and yesterday breached
MARKET FACTORS: Navitas Semiconductor Inc said that Powerchip is to take over from TSMC as its supplier of high-voltage gallium nitride chips Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday in a statement said that it would phase out its compound semiconductor gallium nitride (GaN) business over the next two years, citing market dynamics. The decision would not affect its financial targets announced previously, the world’s biggest contract chipmaker said. “We are working closely with our customers to ensure a smooth transition and remain committed to meeting their needs during this period,” it said. “Our focus continues to be on delivering sustained value to our partners and the market.” TSMC’s latest move came unexpectedly, as the chipmaker had said in its annual report that it has
Gudeng Precision Industrial Co (家登精密), the sole extreme ultraviolet pod supplier to Taiwan Semiconductor Manufacturing Co (台積電), yesterday said it has trimmed its revenue growth target for this year as US tariffs are likely to depress customer demand and weigh on the whole supply chain. Gudeng’s remarks came after the US on Monday notified 14 countries, including Japan and South Korea, of new tariff rates that are set to take effect on Aug. 1. Taiwan is still negotiating for a rate lower than the 32 percent “reciprocal” tariffs announced by the US in April, which it later postponed to today. The
ELECTRONICS: Strong growth in cloud services and smart consumer electronics offset computing declines, helping the company to maintain sales momentum, Hon Hai said Hon Hai Precision Industry Co (鴻海精密) on Saturday announced that its sales for last month rose 10 percent year-on-year, driven by strong growth in cloud and networking products amid the ongoing artificial intelligence (AI) boom. The company, also known internationally as Foxconn Technology Group (富士康科技集團), reported consolidated sales of NT$540.24 billion (US$18.67 billion) for the month, the highest ever for the period, and a 10.09 percent increase from a year earlier, although it was down 12.26 percent from the previous month. Hon Hai, which is Apple Inc’s primary iPhone assembler and makes servers powered by Nvidia Corp’s AI accelerators, said its cloud
RSS