Dow-DuPont talks driven by weak farm demand, investor pressure

Reuters — Merger talks between Dow Chemical and DuPont 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 per cent on Wednesday — Dow’s to a record high of $56.80 (all figures US$). DuPont hit a high of $74.62.

The Wall Street Journal first reported Tuesday that the companies were in advanced talks to merge to become a $120 billion chemicals giant, then split into three companies focused on agriculture, specialty chemicals and materials.

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“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 and Co., noting the companies’ sluggish stock performance had made a deal more doable.

Dow CEO Andrew Liveris said as recently as October that his company was not in the market for “big M+A.”

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.

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.

Reports of the potential deal comes a week before the expiry of a standstill agreement between Dow and Daniel Loeb, under which the activist investor was to refrain from publicly criticizing the company for a year.

Dow added four independent directors to its board in November 2014, averting a proxy fight with Loeb, who had been calling for a split of the company’s petrochemical business from its specialty chemical units.

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

Peltz lost a proxy battle for DuPont’s board seats in May, but CEO Ellen Kullman stepped down in October, having lost the confidence of the company’s shareholders.

Her successor, Ed Breen — known for overseeing the breakup of conglomerate Tyco International — was key in getting talks going with Dow, analysts and investors said.

Reporting for Reuters by Swetha Gopinath and Kanika Sikka in Bangalore.

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