Dow-DuPont Merger Delayed Again Amid $1.6 Billion FMC Deal

  • Combination of U.S. chemical giants seen closing in August
  • Sale of crop-protection assets follows EU antitrust ruling

Dow Chemical Co. and DuPont Co. pushed back the planned deadline for their combination again as the chemical makers advanced toward winning antitrust clearances by striking a $1.6 billion asset swap with pesticide maker FMC Corp.

The $78.7 billion merger of equals will close in August, Dow and DuPont said in a statement Friday, instead of by the end of the first half. FMC surged the most in eight years after agreeing to buy DuPont crop-protection assets, which the European Union wants sold before final approval of the Dow deal. DuPont will acquire FMC’s health and nutrition business.

The FMC deal “satisfies the bulk” of the remedies needed to win consent from governments around the world, DuPont Chief Executive Officer Ed Breen said in an interview. The most recent delay in the closing of the Dow merger allows regulators at the European Commission and their global counterparts to review any antitrust implications of the FMC transaction, he said.

“This was a global remedy and the regulators all do talk with each other,” Breen said. “That is why we feel so great about the EC process.”

FMC jumped 13 percent to $69.75 as of 11:25 a.m. in New York after climbing as much as 17 percent for the biggest intraday gain since 2008. DuPont fell 0.8 percent to $80.96 while Dow slid 0.5 percent to $63.89.

Antitrust Clearance

The closing extension is the latest for a 2015 agreement that was originally set to conclude by the end of 2016. The companies won conditional European Commission approval for the merger on March 27 by agreeing to sell off pesticide and polymer assets. They still need antitrust clearances from the U.S., Brazil and China.

“The delay is driven by the complexity of the asset swap,” Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., said in a note to clients. He said it’s “somewhat disappointing to push things out further.”

There may be “really little things” required by specific countries in order to win the remainder of the regulatory approvals, Breen said.

DuPont is selling herbicide and insecticide properties to FMC along with some related research-and-development programs. The assets, including top seller Rynaxypyr, last year generated $450 million in earnings before interest, taxes, depreciation and amortization on revenue of $1.4 billion, DuPont said. The Wilmington, Delaware-based company is acquiring FMC businesses in food and pharmaceutical ingredients generating $228 million of Ebitda on $700 million of sales, Breen said.

FMC will pay DuPont $1.2 billion cash and allow DuPont to retain $425 million in working capital to reflect the difference in the asset values, according to a separate statement.

‘Good Deal’

“Even after that additional payment it seems like FMC is getting a good deal,” Chris Shaw, an analyst at Monness Crespi Hardt & Co., said in a note. “Could DuPont have gotten more value from this forced divestiture?”

Following the DuPont transaction, Philadelphia-based FMC will have more than 90 percent of sales from pesticides, becoming the world’s fifth biggest producer of crop protection chemicals, CEO Pierre Brondeau said on a separate conference call Friday.

Lithium, FMC’s remaining non-agriculture business, will be operated as a separate entity with an eye toward spinning it off as a publicly traded company, Brondeau said. A formal announcement on the planned spinoff is not expected before the end of 2018, he said.

Post-Merger Credit

Dow and DuPont said they still plan to split the merged company into three within 18 months of closing, identifying the first spinoff as the materials-science company -- a plastics maker that will retain the Dow name. That operation should be rated BBB by Standard & Poor’s, the same as Dow’s current rating, DuPont Chief Financial Officer Nick Fanandakis said in the interview with Breen.

The other two post-split companies will focus on agriculture and specialty products. The agriculture business should have an A- rating, the same as DuPont currently, the CFO said. The specialty-products spinoff will have a rating of BBB to A-, he said.

While the FMC transaction will reduce anticipated cost savings from the Dow-DuPont merger, the combination will still meet the targeted $3 billion of synergies originally targeted, Breen said.

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