Shareholders of Dow and DuPont recently approved the merger of their two companies, but regulators, particularly in Europe, may have a major say in the outcome.
The European Union opened an investigation into the potential for reduced competition in crop protection, seeds and polyolefins. Recent concessions offered by the companies are “insufficient to clearly dismiss its serious doubts”, the EU reported.
While there is more concern about impact on the agricultural sector than on plastics, the ag chemicals consolidation is the driver of the combination and any meaningful changes could upset the value of the deal to shareholders. The EU has until Dec. 20 to take a stand.
From my viewpoint, it’s hard to see a huge problem from a plastics perspective. The plan is to create three standalone companies, including one that focuses on materials.
The proposed $51 billion material science company will include DuPont’s Performance Materials segment, as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions (excluding the Dow Electronic Materials business) operating segments. Dow’s focus is on polyolefins primarily used in packaging and DuPont’s focus is on engineering plastics primarily used in automotive and other technical markets.
From a regulatory perspective, the plastics businesses are a good fit, but it’s not a particularly good fit from a synergistic point of view. I stick to my previous thought that it would make sense for SABIC to trade its engineering plastics assets to the new Dow DuPont materials company in exchange for its fracking-related olefin assets. The resulting company would be an American powerhouse with a great mix of crystalline and semi-crystalline engineering plastics.
The really bad news about the merger is that R&D efforts will be gutted as short-sighted investors dig for maximum profits. That’s an unfortunate industry trend in engineering plastics. SABIC recently closed its plastics development center in Pittsfield, Massachusetts.
As a side note, it will be interesting to see the companies at K2016 in October. DuPont and Dow will have their traditional presences in Halls 6 and 8, respectively, and company officials are sure to say that “it’s business as usual” while they are privately passing resumes to competitive companies.
DuPont had interesting and important press conferences in Europe and the United States before K2013, but has been quiet this year. The long-tenured media person who arranged the American press conference was part of the large DuPont layoffs at the end of last year. Dow seems to be putting a little more oomph into its planning with a booth themed “Face of Innovation”. Kudos to President Jim Fitterling who addresses the elephant in the room in a K2016 welcome video on YouTube.