Dow Chemical and DuPont: How Will the Mega Merger Come Together?
Product synergy and significant cost savings
DuPont (DD) is the world’s leading chemical company. It had a total revenue of $28 billion in 2014. The company has six broad product segments:
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Agriculture
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Electronics & Communications
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Industrial Biosciences
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Nutrition & Health
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Performance Materials
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Safety & Protection
On the other hand, Dow Chemical (DOW) is the second-largest integrated chemical player in the world. It had a total turnover of $58 billion in 2014. Dow has five business segments:
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Agricultural Sciences
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Consumer Solutions
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Infrastructure Solutions
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Performance Materials & Chemicals
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Performance Plastics
Performance material and agriculture are the two common product segments. DuPont’s performance material and agriculture and nutrition segments contributed 74% to its total revenue in 2014. For Dow Chemical, the two segments contributed 39% to the total revenue. After the merger, the combined company is expected to generate around 50% of its revenue from the performance material and agriculture segments. After combining their operations, they would streamline their operations to significantly reduce their production cost and research and development expenses. According to Bloomberg, the combined company would have cost savings of around $3–$4 billion.
Market leading position in agriculture
After the merger, the combined company would become the world’s second-largest chemical company and the largest seed and pesticides company. It would have a 17% market share of the pesticides in the world. It would have 41% of the US corn seed market and 38% of the US soybean market. The combined company would also be the third-largest producer of crop chemicals. Overall, the merged company would become the leader in agricultural chemicals. It would have a competitive edge over major agricultural chemical players like Monsanto (MON) and Syngenta (SYT). The merged company would also significantly enhance its position in the performance plastic segment.
Investors can invest in chemical ETFs like the Materials Select Sector SPDR (XLB) and the iShares U.S. Basic Materials ETF (IYM) to get exposure to the chemical industry. These two ETFs track the performance of the chemical companies. Dow Chemical has the highest holdings in XLB. Dupont has the highest holdings in IYM.
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