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Monday, 18 November 2019

Dow and DuPont: Two titans stir up the chemicals sector

Monday, 14 December 2015 | Posted by: Damir Gagro, European Coatings Journal

The chemical industry is about to witness a jumbo merger. Should the deal between the two titans Dow and DuPont go ahead, a new global market leader would be born. Experts value the deal at 120 billion USD, but also believe there will be significant ramifications for the workforce.

The merger would also see German competitor BASF lose its crown as the world’s largest chemical company, valued at EUR 80 billion.

So far, Dow and DuPont have only floated the idea of pooling their agriculture and seed businesses – which is where the greatest synergy could be released. Insiders say that the new entity will then be split into three businesses, which will focus on agriculture, materials and specialty products.

"Similar to several acquisitions, spin offs and partnerships that we have witnessed in the chemical space in the last two years, it is quite understandable that the discussion around a possible Dow-DuPont merger and the subsequent spin-off of separate business entities is happening right now. The need of the hour for chemical companies is to have focused businesses and not exactly to be a larger entity”, says Deepak Karthikeyan, Industry Manager, Chemicals, Materials & Foods Practice, Frost & Sullivan. Having said that, the synergies that the entities can immediately tap across the specialty portfolios of the companies are not as much as expected, he continues. "The combined agro entity will surely become a formidable competition to the likes of companies like Monsanto, but the business and product overlap across their specialty businesses are very few. For instance, electronic and display materials is an area where the companies can potentially experience cost benefits and increased market penetration, while other markets such as safety, where Dow is not active, will not see much change. Similarly, at present both companies focus on areas such as polymers, elastomers, composites and photovoltaic materials, which can prove to be a game changer in those industries”, explains Karthikeyan.

Job cuts announced

The merger will surely also face numerous regulatory hurdles across different regions, because both companies have a very strong global presence. The deal is expected to be closed in the second half of 2016. What the impact will be on employees is still not quite certain. DuPont currently has 63,000 employees and Dow Chemical 53,000. So far, only DuPont has announced a cost-cutting programme: it wants to save USD 700 million, mainly by trimming about 10% of its workforce. Were Dow to follow suit, job losses would total nearly 12,000.

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