The planned $130 billion merger between The Dow Chemical Co. and DuPont isn’t a done deal. The merger is still going through regulatory review. And just a few weeks ago there were reports that chemical giant BASF was considering a takeover bid of DuPont.
But according to Frederic Choumert, a principal with Roland Berger, a global strategy consulting firm, these factors aren’t likely to stop DowDuPont from taking shape. The plan is that after the slated completion of the deal at the end of this year, the country’s biggest chemical company will then split up into three smaller and more-focused companies: specialty chemicals, advanced materials and agriculture.
What will be the fallout of this historic deal? In an exclusive interview with Chem.Info, Choumert discussed Roland Berger’s recent analysis of how it is already impacting the industry.
NO ONE IS IMMUNE TO ACTIVIST PRESSURE
It’s no secret that the Dow-DuPont merger was a result of investors pressuring the companies to find more focus in their diverse portfolios.
“There’s a lot of activist money that has moved into the chemical industry in the last few years,” Choumert said. “One of the first things these activists do is look for a piece of the puzzle in a portfolio that doesn’t make sense and try to make it more clear.”
By creating a more focused portfolio, Choumert said it’s easier to understand the company’s growth potential, which makes them more attractive to investors. While this trend is certain to impact other big chemical companies such as Eastman Chemical Co. and Solvay, Choumert said smaller companies won’t be immune to investor pressures.
For tips on how to investor-proof your chemical company, check out a recent Chem.Info article featuring analysis from PwC.
AMPED UP M&A ACTIVITY — ESPECIALLY IN AGRICULTURE
According to Choumert, the DowDuPont consolidation — which will merge DuPont’s seeds business with Dow’s chemicals capabilities — will create the No. 1 player in agriculture. This pressures other major companies such as Monsanto to find similar happy marriages — and the courting has already begun.
Recently, China’s biggest chemical company, ChemChina, offered $43 billion to take over Swiss agrochemicals company Syngenta. Monsanto has also been discussing an acquisition of Bayer and BASF’s crop units.
Choumert said that part of the reason companies find mergers so appealing is that growth in the chemicals industry hasn’t been skyrocketing in recent years and looks to be slowing in major markets like China and Brazil — so a merger or acquisition is a quicker way of generating growth.
R&D WILL TAKE A HIT
Another well-documented aspect of the DowDuPont deal is that because investors don’t see as big of a return on R&D, these efforts are getting gutted.
“It’s almost the death of innovation,” Choumert said. “These two chemical companies have been at the forefront of creating a lot of materials for the world for many years.” But because of the pressure to cut costs, Choumert said, “Thousands of [R&D] jobs are going to disappear.”
For now, Choumert said the only upshot is that some of the jobs will move from research to product development. But in general, Choumert said the mood in the chemicals industry among many he’s met has been “sadness” about the losses in R&D.
EMPLOYMENT LOOKS BLEAK IN THE SHORT TERM BUT COULD IMPROVE
Another downside in the effort to streamline savings across the board at Dow and DuPont has been job cuts. DuPont alone is planning to slash about 10 percent of its global workforce. It’s a situation that many have said has created a “depressing” mood at DuPont facilities.
In the long run, however, Choumert said the jobs picture could improve. At first, many jobs are cut to eliminate overlap in skills that exist between two companies. In the case of Dow and DuPont, once the company is split into three separate entities, each segment is going to get the attention it deserves. This focus could drive growth and ultimately pave the way to creating new jobs.
OTHER CHEMICAL COMPANIES COULD TAKE ADVANTAGE OF MERGER MESSINESS
The value of mergers and acquisitions reached record levels last year — but they can be risky for businesses. Choumert said that Dow and DuPont will have to be especially careful that in the process of merging these two giant companies, they don’t become so disorganized their businesses suffer.
“From a competitive point of view, the merger is going to be time consuming and distracting for employees and managers,” Choumert said. “So if they’re not careful, they risk taking their eyes off the ball of competing from other players who could steal customers and employees as integration unfolds. You see that a lot in large mergers.”