EU approval boosts Dow-DuPont merger hopes
The European Union has approved the proposed $130 billion merger between Dow Chemical and DuPont, the companies announced Monday morning.
The approval is conditional upon Dow and DuPont divesting certain assets, but it is a big victory for the companies. It is the first green light a regulatory body has given the deal that will result in Dow and DuPont combining into a massive corporation with holdings in agriculture, nutrition and health, material sciences and safety products. Within two years of the merger's completion, the combined entity, dubbed DowDuPont, will split into three independent companies. Two of those businesses will be based in Wilmington, with the third based in Dow's hometown of Midland, Michigan.
"Longer term, the intended three-way split is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each company will be a leader in attractive segments where global challenges are driving demand for their distinctive offerings," Dow and DuPont said in a statement.
Now that Dow and DuPont have cleared the first major hurdle, other countries are expected to follow suit. The merger is being scrutinized by the United States, China, Canada and Brazil. It is not known when those countries will announce a decision.
"The companies continue to work constructively with regulators in the remaining relevant jurisdictions to obtain clearance for the merger, which they are confident will be achieved," the Dow and DuPont statement said.
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Matt Arnold, an analyst for Edward Jones Investments in St. Louis, said the European Union is typically viewed as the toughest jurisdiction for merger reviews.
"Today's news gives us immense confidence that the merger will get done," he told The News Journal.
Antitrust reviews are conducted independently and can differ from country to country. Salil Mehra, a professor of antitrust law at Temple University, said the European Union's support of the deal is a good sign that the remaining jurisdictions will follow suit.
There is a lot of consistency because there has been a concerted effort to harmonize some of the antitrust approaches," he said.
The European Commission had been skeptical of the deal, worried that it would stifle competition and reduce innovation in the agriculture sector. Dow and DuPont responded by agreeing to divest some business units to appease regulators. In February, DuPont offered to sell part of its crop protection business along with its associated research, excluding seed treatment, nematicides and late-stage R&D programs. Dow agreed to part with its acid copolymers and ionomers businesses.
Margrethe Vestager, the chair of the European Commission, the European Union's top regulatory agency, said in a statement the divestiture conditions were necessary to ensure the merger "does not reduce price competition for existing pesticides or innovation for safer and better products in the future."
The divestitures are considered a small part of each company's portfolio. Arnold said he does not expect DuPont's portion to impact the agriculture business that will be spun out of DowDuPont. The agriculture company, headquartered in Wilmington, will be the largest in its industry.
"The agriculture unit has balance and strength across every product type," he said. "They didn't divest to the point where there would be a gap."
Mehra said he does not expect the remaining jurisdictions to request additional asset sales.
"There is no reason to think something that is on-the-whole beneficial in one place might not be on-the-whole beneficial in another place," he said.
Delaware impact
Delaware's federal legislators say the DuPont asset sales could be good for the state. Some of the agriculture research and development was done at DuPont's Stine-Haskell Research facility in Newark. In 2015, DuPont spent $35 million to build a 134,000-square-foot soybean research center at Stine-Haskell for DuPont's hybrid seed unit, Pioneer. Work on the facility was expected to be completed last year, but was halted when DuPont CEO Ed Breen moved Pioneer's research and development to Johnston, Iowa.
"If the consequence of this decision by the EU goes in the right direction, it could result in a majority facility in Delaware being revitalized and seeing new investment and new employment," said Sen. Chris Coons, (D-Del.)
Those workers who were not transferred to Iowa also faced the prospect of being relocated to Indianapolis, where Dow AgroScience's research is headquartered once the merger is completed. Sen. Tom Carper, (D-Del.) said the divestiture will keep jobs here in Delaware.
"My understanding is that if not for the EU's intervention, Stine-Haskell workers might have ended up in Indiana with Dow and now there is a good chance they will not," he said.
Coons said once a buyer for the research unit is identified, the delegation will reach out to explain the benefits of investing in Delaware.
"We must impress upon them that Delaware is a strong area for technology and research and development and we have the right workforce," he said.
Rep. Lisa Blunt Rochester, (D-Del.) said she looked at today's approval as good news for Delaware. She is also hopeful the acquirer of DuPont's agriculture research unit expands and upgrades its Delaware operations.
"Agriculture is an $8 billion industry in our state," she said. "The opportunities to grow this unit will have an impact statewide because we will have more opportunities for good paying jobs."
Agriculture merger mania
Some of the European Commission's hesitation extends beyond the merger between DuPont and Dow. In 2016, five of the world's six largest agriculture companies agreed to separate mergers. Bayer has struck a deal to acquire Monsanto, and ChemChina, a Chinese company, is buying Syngenta. If all three mergers are approved, three businesses would control 62 percent of the world's patented seeds and 62 percent of all pesticides.
"I think this review was impacted by the six-to-three dynamic," Mehra said.
Dow and DuPont were expecting the merger to be approved last fall, but in September the companies asked for a 10-day extension. That pushed the review deadline from late September to early January. But the commission halted the probe in October, saying it needed more information about the deal's impact on agriculture competition. About a month later, the investigation was restarted with the goal of completing the review by Feb. 6. However, earlier this year, the regulators set a new review deadline of April 4.
It was not a surprise that the European Commission green-lit the deal as rumors of a March approval had been surfacing since late February.
Both companies had privately detailed to European regulators concessions they would be willing to make in August 2016, but Vestager raised concerns last year about whether the divestitures would be acceptable.
Vestager said at that time the concessions were "insufficient to clearly dismiss its serious doubts" about whether the merger would stifle innovation and competition throughout the European Union. She indicated the agency might ask for additional concessions.
The European Union's approval means the deal will remain on track for its target completing date of late June. DuPont CEO Ed Breen told Wall Street analysts in late January the merger will be completed by the second half of 2017.
Both Dow and DuPont's stock remained unchanged despite the news. Dow's stock fell by a third of a percent by the close of trading to $64 per share. DuPont, meanwhile, saw its stock rise by 1 percent to $80 per share. Arnold said the lack of a big stock gain is a reflection of a market that was down, overall, in Monday's trading, and the minimal price change in both Dow and DuPont stock shows investor confidence the deal will get done.
"They are both still modestly outperforming the market today," he said.
Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.