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DuPont, Dow Set Headquarters for Planned Agriculture Unit

Zacks Equity Research

DuPont DD and Dow Chemical DOW have declared the U.S. site structure for the planned Agriculture company that will be spun off following the completion of the proposed merger between the chemical giants.

The companies stated that the corporate headquarters for the independent Agriculture company – which will feature DuPont in its name after the completion of the corporate naming and branding process – will be based in Wilmington, DE.  It will also include the office of the CEO and key corporate support functions. Moreover, sites in Johnston, IA and Indianapolis, IN will serve as global business centers.

The proposed Agriculture unit, which will unite Dow's and DuPont’s seed and crop protection businesses, is expected to achieve $1.3 billion in synergies.

In a historic move, DuPont and Dow Chemical agreed to combine their businesses in Dec 2015 in an all-stock deal to create a chemical titan dubbed “DowDuPont” with a combined market value of around $130 billion, before eventually breaking up into three independent, publicly traded companies through tax-free spin-offs.

The planned merger – the largest deal ever in the chemical space – will see the union of two of the America’s oldest companies. Under the deal terms, shareholders of DuPont and Dow will each own about a half of DowDuPont, excluding preferred shares.

The combined company would split into pure-play agricultural, material science and specialty products businesses that will be leading players in their respective fields. The breakup is expected to take place 18-24 months after the completion of the deal, which is expected in second-half 2016.

The companies also reaffirmed, last Friday, that the corporate headquarters for the combined specialty products business will remain in Wilmington. The unit will include DuPont's Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications units and Dow’s Electronic Materials business.

The Material Science company, which will feature Dow in its name, will be based in Midland, MI. It will consist of DuPont's Performance Materials segment and Dow's Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions (excluding the Electronic Materials business) divisions.

The proposed mega-merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure. The deal, however, would need regulatory clearances in several countries and is expected to face a tough antitrust scrutiny due to competitive concerns given its massive size and scale.

DuPont’s shares closed unchanged at $59.97 last Friday while Dow closed roughly 1% lower at $47.08.

Both DuPont and Dow currently carry a Zacks Rank #3 (Hold).

Better-ranked companies in the chemical space include Daqo New Energy Corp. DQ and Koninklijke DSM N.V. RDSMY, both holding a Zacks Rank #1 (Strong Buy).

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