By Chris Clayton
DTN Ag Policy Editor
OMAHA (DTN) -- The merger of Dow Chemical and DuPont announced by the companies Friday makes the new combined company, DowDuPont and its future agricultural spinoff into the largest seed and crop-protection provider in the industry.
Ed Breen, chairman and chief executive officer for DuPont said the $19 billion agricultural company would bring together strong, balanced portfolios in both seed and crop protection.
"Consolidation in the ag industry is a natural step, and this transaction is the most logical and compelling combination," said Breen, who will be the chief executive officer of DowDuPont. "Simply put, we are creating the world's leading agricultural company."
In a conference call on Friday, Breen pointed to DuPont's "unrivaled market access," germ plasm and breeding capabilities with Dow's strengths in biotech traits and crop protection. The combined company will be a half-and-half mix of germ plasm, traits and crop protection, translating into an ability to deal with a wide array of issues facing farmers in production agriculture.
"We will have the most complete portfolio of any ag company," Breen said.
Breen said the combination will create a diverse mix of seed products across corn, soybeans, cotton and other crops. In crop production, the companies also combine an array of insecticides and herbicides with emerging products in fungicides. Breen said the combined agricultural company would "really give our end consumer, our farmer, a lot of product choice here and diversity of choice, which is going to be a real advantage from a market share standpoint for us."
DuPont already had about $11 billion in ag sales in 2014, weighted more heavily toward seeds than chemicals. Dow had about $7 billion in ag sales. Combined, though, the companies see their mix as topping $19 billion in revenue, which factored in the AgroFresh divesture. The combined company would have about $3 billion more in sales than Monsanto, the next largest competitor, and Syngenta, which has about $14 billion in sales.
DowDuPont will combine into a single company with roughly $81 billion in revenue. DowDuPont will then separate different industrial sectors into three individual companies focusing on agriculture, material sciences and specialty products.
Dow and DuPont have both faced criticism from activist investors who have demanded the companies provide more shareholder value. DuPont's Breen and Dow CEO Andrew Liveris both repeatedly emphasized "synergies" and shareholder value. Breen and Liveris highlighted synergy in reducing costs -- as much as $4 billion -- and increasing growth in all three industry sectors.
"The merger of these two highly complementary companies and combined spinoffs is a real game changer, and going forward it will bolster the growth profile for each," said Liveris, Dow's chairman and CEO who will now be the executive chairman of DowDuPont. "It will expand the potential to serve our customers and release significant value for shareholders."
The two executives pointed to the failed Monsanto-Syngenta talks last summer as sparking a lot of talks in agriculture regarding potential mergers. Liveris said it was important to find a corporate marriage in agriculture that combined the seed and chemical side in a "hand-in-glove fit."
The current weaknesses in agriculture were a particular focus for DuPont. The company's most recent quarterly report, DuPont noted its international sales had seen a 30% decline in crop-protection sales and a 38% decline in seed sales in Brazil.
Breen and Liveris highlighted each company was already undertaking plans to cut costs, but expect to see even greater cuts, or "synergies" in a combined company. Savings throughout the total corporate structure over the first two years would range from $3.5 billion to $4.1 billion. In agriculture, the companies projected a cost savings of about $1.3 billion.
"In agriculture, 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," Breen said.
In Material Science, the company will deal with plastics, industrial chemicals and automotive divisions. Material Science will have $51 billion in combined revenue, $45 billion from Dow and $6 billion from DuPont.
The Specialty Products division will include electronics, nutrition and health, industrial biosciences and other electronic materials. That company will have about $13 billion in revenue.
Breen said DowDuPont anticipates it would be able to close the deal sometime in the second half of 2016. Breen said he did not expect any need for antitrust divestments because the two companies largely complement each other in the major sectors.
"It would be very limited where there are product overlaps," Breen said.
Editor's note: DTN is partnered with DuPont in its Pioneer Encirca farm services program.
Chris Clayton can be reached at chris.clayton@dtn.com
(AG/CZ)
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