Dupont has an "employee-first" attitude that permeates the corporation and dates from its early years when the manufacture of gunpowder proved to be so risky. The Dupont family owners recompensed families of injured/dead employees by providing housing and supporting them for the remainder of their life. Safety became paramount in all operations. The attitude remains today. Despite the recent indiscretions in the LaPorte, Texas plant, Dupont is probably the safest chemical company on the planet.
If Dupont culture dominates, then this will likely prove a Renaissance for Dow. OTOH should Dupont culture be subjugated, it will ruin the value of the merger and we will all lose a company (Dupont) that has been possibly the best-run, most forward-looking corporation that has existed.
Is it unusual to stage a merger like this with the explicit goal of splitting into three smaller companies in the near-ish future? If the company is planning on splitting, I would imagine the consequence of having two headquarters would be different.
There were only couple of options for this merger to take place.
1. Dow and DuPont merge without any further plans to split. This wouldn't fly with regulators as combined entity will have too much power in US as well as worldwide. Not only US regulators but also regulators in EU and Asia will be very interested in vetting such deal.
2. Dow and DuPont swap the agriculture and specialty products divisions and merge the materials division with recent DuPont spin-off Chemours. This wouldn't fly with regulators either as both Dow and DuPont will have too much power in their respective segments.
If Dow and DuPont would have gone with option 1, the regulators would have come up with their own plan to divest certain businesses to approve merger. Instead, Dow and DuPont are offering a future split solution by proposing to split in three portions that will get them closer to option 2 with some regulator-driven divestment.
I will not be surprised when and if merger and split goes through, we land up with the second scenario anyway. Agriculture goes to Dow with HQ in Midland MI, Specialty products goes to DuPont with HQ in Wilmington DE, and Materials goes to Chemours.
The merger and the split are individually quite common, but relatively unusual as a combined transaction.
I haven't seen any announced plans to have one HQ focus on one of the three businesses and the other on another, but that would make at least a bit more sense. But then, what about the third business?
If I had to guess I'd say the decision to keep both the headquarters is psychology-driven. You don't want either the Dow folks or the DuPont folks thinking that they're the target, because usually in M&A situations the acquiror keeps A LOT more of its corporate overhead. So logically, this perhaps makes the most sense as an attempt to avert the desertion of a lot of talented lawyers, accountants, HR people, and other headquarters types.
If that is in fact the case, expect an announcement about six months after the deal closes that they're consolidating their headquarters. My guess is they'd keep it in Delaware.
I'm not much of a business guy, I just find this kind of stuff interesting. Thanks for the reply, I know M&As are delicate but I don't know a whole lot of the strategy behind how they're carried out.
DuPont IS Delaware. The reason the state is so business amenable is because DuPont effectively floats the whole state, tax-wise. Everything in Delaware is named after DuPont, and massive chemical plants dot the landscape. The DuPonts founded gardens, estates, schools, performance halls, everything. They're the first family of Delaware. And Delaware was the first state!
It's not really taxes, although the fees for filing corporate documents. The franchise taxes are lower, but the numbers for large companies are so tiny it's inconsequential ($800 in California compared to $150 in Delaware).
My understanding is that Delaware has strong corporate law with well defined protections for corporations and lots of case law to back it up from their Chancery Court. The huge history of case law is really what makes the big deal from what I've read because it makes contracts enforced there (which all shareholder contracts would be) much more predictable in terms of what's allowed.
Huh? Because of the order of the names? Maybe they did it in alphabetical order. Or because it sounds better. When AOL and Time Warner merged, it was called AOL Time Warner, but Time Warner was clearly the driver as history shows, for example.
IIRC, all headlines at the time of AOL-TW merger were new media (AOL) taking over old media (TW). What happened after the merger was primarily driven by dot-com crash and internal politics at AOL-TW.
Typically, in a combined name scenario at merger, the acquirer/bigger influencer's name is listed first. AOL Time Warner, Exxon Mobil, Chevron Texaco are some few joint names after mergers that come to my mind.
If you look at Dow and DuPont actions in last decade or so, you will notice that DuPont investors have been pushing for divestures, for example Chemours, and not acquisitions while Dow has been on acquisition binge, for example, Union Carbide, Lyondell.
As a former regulator of that sector, they were nearly as bad as BP, which was well known for a laundry list of violations long before Deepwater Horizon.
DuPont "employee-first" culture hasn't been true since 90s. The business challenges at DuPont and the executive succession in 90s killed that image. DuPont used to be dream company to work for most new ChE graduates. I worked at Dow in mid-90s. I still have friends at both Dow and DuPont in addition to being stockholders of both companies.
I doubt the merger will be approved by US, EU and possibly Chinese regulators without major concessions. The subsequent 3-way split in 18-24 months is just trying to appease the regulators to approve merger. If merger goes through, there will be no major player at least in specialty chemicals in US and most probably 3-4 major players in this segment worldwide. Other proposed segments have similar issues.
For those who aren't clicking without some context: DuPont has known since the 60s that C8, or PFOA[0], a chemical used in the production of Teflon, is harmful to humans even in tiny amounts. It has knowingly concealed and lied about the harm both to its employees and everybody else, and it has continuously released it into the environment while doing all that it can to avoid taking responsibility for the harms it has caused.
The linked article is the first in a series of three that take an in-depth look at the situation, the harms, and the lack of consequences for the company until now. I expect there to be more follow-up articles as there are some lawsuits now in progress with lawyers who are armed with internal documents showing that DuPont knew about the problems for decades.
From the point of view of the owners, some of those old style, "employee-first", companies can't change their ways fast enough in order to improve profits.
I have seen first hand how one company used a merge as a excuse to change their culture. Some people, even speculated that this was the real reason for the merge.
If you are a majority stock holder, maybe a heir, you don't see the need in this times of weak unions, pro-business laws and cheap educated available labour of keeping your employees so happy.
I don't know anything about Dupont and Dow cultures, but if it is as you explain, you can bet what culture is going to dominate.
In Wilmington, Delaware here. I agree with this assessment. My Dad is a retired R&D scientist in materials for DuPont. Safety has always been treated with the utmost seriousness by the company. It was common for them to fire employees as early as the 1960s for failing to follow lab safety procedures. They are also famous for taking care of their employees.
>DuPont said it expects 10 percent of its 63,000-strong global workforce will be “impacted,” and the company is budgeting for $650 million in “employee separation costs.” Analysts also expect layoffs at Dow, which employs 53,000 worldwide.
>Dow chief executive Andrew Liveris also called it a “seminal event for our employees.”
$650M / 6300 ~= 100k per employee. Granted, not all of that will be allocated to severance packages, but even half of that would be a pretty phenomenal.
Even $100k doesn't do much for you if you live in Midland, MI and just left the only chemical company in town. You'll have to move, probably out of state, and be competing with thousands of other newly unemployed folks chasing a few jobs in a mature industry. (Disclaimer: I grew up in Midland, and my family all worked for Dow.)
I appreciate the difficulty of having to find a new job with a bunch of other folks, but at the higher-end salary range is "finding a new job in town" still a reasonable expectation?
I suppose it depends on where you live, and what you do. I live in Boston doing software, so I can always find another job without moving. It will affect Midland more.
Midland is an old company town, and there isn't a huge amount of chemical industry in the state, other than the Dow support system of suppliers. The other employer in town, Dow Corning, was a joint venture but (as was also announced today) is also being absorbed back into Dow.
The house prices in Midland will collapse, as lots of people move out of town together. There just aren't going to be enough open jobs in the chemical industry. I think most people will either have to retrain or retire early.
I know that's how the world works these days, but it is sad to see my hometown come to such hard times.
With all the shift to contract labs abroad, is finding a new job in chemistry still a thing? The trend for medchem startups these days is to be "fabless", it's a dude with an idea who contracts synthesis and testing out to labs in China.
There's friction through off-site coordination, there is loss of informal knowledge, there is silo-ing - these are all very immediate concerns. IP leakage is much further down on the list.
Aye, it does work out to about $100k per employee, but you have to remember that not all employees are equal in pay or severance. Applying a generous 70/30 rule (80/20 would be harsher), that is a lot of life changing for $30k for the bulk of the people.
> Getting laid off is almost like winning the lottery
Now there's an opinion you don't hear every day. Why not just leave the company if you know you can be quickly hired into a better-paid/more enjoyable job?
when you get laid off like this it is normal to get between 2 to 3 months salary as severance. if you quit you get nothing, i have seen people stick around in companies after mergers for weeks knowing they are going to be laid off but just waiting around for their severance check because waiting 2 weeks to leave a job can be a difference of ten of thousands of dollars in your pocket
When I was laid off in 2009, I got 2 weeks 'severance' even though I had 10 PTO days accrued. (They basically just paid out my paid leave). This was for a software consultancy business.
In 1905, German bromide producers began dumping bromides at low cost in the U.S. in an effort to prevent Dow from expanding its sales of bromides in Europe. Instead of competing head on with the German producers, Dow bought the cheap German-made bromides and shipped them back to Europe, undercutting his German competitors.*
A fine example of "predatory pricing" gone wrong (which happens more often than not).
The resulting 3 companies would be in separate industries, and therefore have no direct competition between them. Therefore, I would say that regulatory approval isn't certain. Probably it will be approved, but with a long list of caveats and provisions. Among them will no doubt be some environmental concessions that DowDupont would never bother following.
While it's not certain, it's only forecast to be "17 percent of global pesticide sales and about 40 percent of America’s corn-seed and soybean markets."
Since the economics-textbook definition of the power of a monopoly is that they have power over prices, it's not entirely clear how monopolistic they will be in practice. Roundup Ready corn is nice (well, for farmers anyway) but if they raised the price too high farmers could always just switch to regular corn. And there exist alternatives to materials like Teflon and Kevlar as well.
> Roundup Ready corn is nice (well, for farmers anyway) but if they raised the price too high farmers could always just switch to regular corn.
Or, you know, if DowPont tried that with something Roundup Ready (of which, IIRC, only first-generation Roundup Ready soy is off-patent), they would lose business to Monsanto, who will not only still be the dominant seed company after the DowPont merger, but is also the creator and, for crops like corn where the initial Roundup Ready variety is not off-patent, patent-holder for Roundup Ready traits.
This kind of merger seems exactly what the regulatory system was designed to prevent, right? Have any recent mergers actually been blocked? Is the regulator completely toothless now?
Staples / Office Depot, Time Warner / Comcast (not officially blocked but called off due to regulatory approval), T-Mobile / AT&T. Those are just some recent big ones I can remember off the top of my head.
The combined company won't have a monopoly by any stretch: in the chemical space, it'll compete against the Germans (BASF, Bayer), and in the Ag space it'll compete against Monsanto.
The FTC and DOJ don't block mergers because it may result in a monopoly. They don't specifically judge things based on monopoly or market share, but rather based on whether it will likely or has resulted in consumer / market harm (and I would agree that a quasi-monopoly merger is far more often than not going to fall into that category in the eyes of the FTC or DOJ, but that's not the criteria they start from).
Intel for example has / had a practical monopoly in processors for many years in PCs. The government was ok with it, based on various terms they agreed upon with Intel. The same is true of Microsoft, and countless other businesses (big and small) across the US.
There of course used to be far stricter rules on local monopolies in media (radio, tv, newspapers, cable stations etc), but those have been heavily relaxed in the last 20 years.
Only if the market is inherently local or the combination with result in increased prices.
Market sizes vary. For airlines they look at cities or even specific airports. it doesn't matter that there are a million different airlines, if your merger creates a quasi monopoly for flights into and out of some cities. That's why in airline deals, you often see one of the two sell off routes to third party competitors.
But for chemicals and agriculture supplies--it's really an international marketplace. It doesn't really matter if they are the only US company as long as Chinese, Korean and German companies are active in selling in America.
Though the DOJ will undoubtedly look at the deal hard. Make sure things like distribution chains, retail deals etc. don't create a monopolistic effect.
Production is also international. German chemicals giant BASF's first plant outside of Europe was built in Texas in 1958, and as of late they've found Texas very attractive because of our low natural gas prices, feedstock costs are very important when you're making chemicals by the 100s of thousands of metric tons.
(Potential supply disruptions might also be an issue, seeing as how last time I checked Germany gets most of it's natural gas from Russia through pipelines going through Ukraine, and with the latter two being at war right now....)
I wonder how come BASF and Bayer are still in business, post-WW2. From the wiki page of Carl Wurster (https://en.wikipedia.org/wiki/Carl_Wurster), the guy who re-established BASF in the early 1950s, out "of the ashes" of the infamous IG Farben:
> Wurster retained links to those he had worked with as part of the Nazi war machine and on 6 February 1959 as chairman of BASF he hosted a reunion banquet for the veterans of the pre-1945 IG Farben Vorstand. The event was attended by Otto Ambros, Heinrich Bütefisch, Fritz Gajewski, Max Ilgner, Friedrich Jähne, Carl Krauch, Hans Kühne, Wilhelm Rudolf Mann, Christian Schneider and Fritz ter Meer as well as Carl Bosch's widow.[4]
All of those guys were Nazis, some of them convicted war criminals.
GE selling it's appliance business to Electrolux AB.
Technically the FTC didn't block it, but GE did back out before the FTC made their ruling. Most likely because the FTC was going to block it.
Among industrial companies like in the OP, GE, under Jack Welch, proposed to buy/merge with Honeywell in the late 1990s. It was shot down by regulators. http://www.economist.com/node/687696
It makes me wonder how much harder it would be to end up with the three companies planned, but without a bigger company between now and then. It would involve creative shuffling.
Trian, led by Nelson Peltz, wanted to break DuPont into pieces, and Peltz said that even though he lost the proxy battle, he wasn't finished with DuPont:
And with the layoffs that already took place during and after the Chemours spinoff, this new round will really hurt the Delaware economy. Sad to see a great company start to die in the 90's and after three decades of bad management end up like this. At least the earlier DuPont family left things like Longwood Gardens, Winterthur, EI DuPont Childrens Hospital , etc. Chad and Ellen's legacy is 1000's of shattered families.
... but will then break up into three independent publicly traded companies, one focusing on agriculture, one on materials, and one on specialty products.
I think I meant to imply that the combined company will then break up into three independent publicly traded companies, one focusing on agriculture, one on materials, and one on specialty products
Great, so now you have not one, but three monopolies in various industries. This deal seems to be made mainly to get rid of its strongest competition in those industries.
Bubble deals are delightful. Time Warner and AOL merging marked the height of bad mergers in the last tech bubble. Since every trading company is now basically a tech company in disguise I wonder if this time around these mega deals will be seen as disastrous in the eyes of history.
Click through the interstitial and you can watch the whole thing, which goes into mergers [relevant!] as well as AOL/TW particularly.
Needless to say, it was difficult to predict. In terms of the top websites by traffic cited in the lecture (and looked at by the FTC for monopoly review) you had (in decreasing order w/ unique visits per 1 month, units not mentioned):
AOL 61, Y! 52.7, MS 51.4, Lycos 30.8, Excite Network 27, Go Network 23, About 20.6, AltaVista 19.2, TimeWarner 15.9, Amazon 15.3
You've got a crystal ball if you could have looked at that, predicted the future, and said "Gee, joining up AOL with a media company is a really bad idea."
Just to be clear, Dow bought out the remnants of Union Carbide, after they died post-Bhophal. It didn't happen as part of Dow. Dow is extremely safety conscious, and the inexcusable things Union Carbide did would never have happened in a Dow plant.
Looking at the stock chart in the article, "cool reaction from investors" they mention is a downward adjustment reversing most of Wednesday gains, but still putting each company above Tuesday close.
Was there another announcement Tuesday night, that set hopes high, with this one being a disappointment? What was the new information -- something about the structure of the new company perhaps?
Farmers, or their lobbyists, would be well-advised to get very busy pressuring congress to block this. If Dow and DuPont successfully merge the control of major seed will be down to two mega-corporations; the other being Monsanto. Future prices and controls will become even less favorable for farmers. A quote from a CEO I knew: "Mergers benefit at most one CEO and a minority of stock-holders -- everyone else involved suffers, employees especially"
Yeah, I'm not sure where they got that part. Besides obviously not inventing the actual element, neither Dow nor Dupont were the first to produce chlorine, nor even the first to produce it on an industrial scale. And they didn't invent the main process by which it's produced (chloralkali process). It's kind of a throwaway sentence in the article though, so I doubt much research went into it.
There's still international competition. Monopolies typically bring costs as low as possible for their consumers to block out competitors. This is a fairly positive net-effect. Theoretically, if a company was to get really bad PR then consumers would be OK paying more for their competitor and the great monopoly would show cracks and eventually break (unless it healed itself).
Yes we need the competition, but it's not so black/white otherwise no merge would go through.
How would one monopolist price more competitively than a number of competing vendors?
Consumers need competition, producers avoid it where they can. Competition sucks from a producers perspective -- price equals marginal cost and profit is zero (in perfect competition).
Can't we stop this consolidation and keep the market competitive just by having a progressive corporate tax? Are there any arguments against such a tax?
Why? Mergers are not inherently bad, and there seems to be a knee-jerk reaction against them without supporting evidence. Not to say that evidence doesn't exist, but it should if a merger is to be blocked.
It seems that logic in the comments is quite simple: bad companies = evil. Not monopolies, just BigCo: the bigger, the badder.
Which is pretty logical, because while economical benefits of such companies are spread thinly among shareholders as well as global economies, the bad stuff they cause is always personal. So, regardless of whether good outweighs the bad or not (and I won't pretend that I know answer to that), individuals will always see them as something evil.
Dupont has an "employee-first" attitude that permeates the corporation and dates from its early years when the manufacture of gunpowder proved to be so risky. The Dupont family owners recompensed families of injured/dead employees by providing housing and supporting them for the remainder of their life. Safety became paramount in all operations. The attitude remains today. Despite the recent indiscretions in the LaPorte, Texas plant, Dupont is probably the safest chemical company on the planet.
If Dupont culture dominates, then this will likely prove a Renaissance for Dow. OTOH should Dupont culture be subjugated, it will ruin the value of the merger and we will all lose a company (Dupont) that has been possibly the best-run, most forward-looking corporation that has existed.