The once stable world of engineering plastics took another crazy turn last night when the Wall Street Journal reported that Dow and DuPont are in the advanced stages of a merger discussion that could result in their breakup and the creation of three new businesses. Already this year, Bayer divested its performance plastics business and SABIC announced dissolution of its Innovative Plastics unit, which had already been dropped by GE.
Here’s what I think a merger and subsequent breakup would mean:
- It would not be good for the interesting and important work being done by DuPont in the development of biobased chemicals and plastics. DuPont has been seeking whole new families of plastics based on renewable resources as part of an effort to produce more than half of its plastics and chemical monomers from renewable resources within the next 13 years. Work is based on research synergies at DuPont, including the agricultural and biofuel side, which would no longer be associated with the Performance Materials business in the proposed deal. Also, it would be probable that the new merged plastics company would be very short-term & bottom-line focused.
- Many jobs would be lost as the new management eliminated duplication and created a very lean new organization, especially if venture capital is involved, which would be likely for the plastics side of the business. Clearly, the big payoff for the company’s shareholders would be creation of a standalone agricultural business. Assets of the two companies, for example, control 41 percent of the U.S. corn seed business.
- I think even more shakeups would be coming because the plastics businesses of the two companies do not match up well, except in packaging and elastomers. Dow lists the biggest competitors of its Performance Plastics business as Borealis, ExxonMobil, INEOS, LyondellBasell, Mitsui and SABIC. Any of those companies would benefit greatly from Dow’s work on development of shale gas feedstocks and polyolefins. SABIC would be a particularly good fit. It would then make sense for SABIC to flip its engineering plastics into the new company owning DuPont’s engineering plastics. It would be a great matchup of crystalline and semi-crystalline plastics.