
Dow and DuPont to merge - gotchange
https://www.washingtonpost.com/news/business/wp/2015/12/11/dow-and-dupont-two-of-americas-oldest-giants-to-merge-in-job-dropping-megadeal/?hpid=hp_hp-top-table-main_dupont_dow_800am%3Ahomepage%2Fstory
======
giardini
The two companies cultures are incompatible.

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.

~~~
leroy_masochist
According to Dealbook [0], "The new company would have dual headquarters in
Wilmington, Del., and Midland, Mich."

Dual headquarters usually works out about as well as co-CEOs.

To the point of DuPont having a great company culture, I agree. I used to
cover them as an investment banker....they are definitely safety-obsessed.

[0]: [http://www.nytimes.com/2015/12/12/business/dealbook/dow-
chem...](http://www.nytimes.com/2015/12/12/business/dealbook/dow-chemical-and-
dupont-merger.html?ref=dealbook&_r=0)

~~~
steve-howard
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.

~~~
leroy_masochist
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.

~~~
geogra4
Delaware? Any reason for that specifically?

~~~
leroy_masochist
DuPont is there, Dow is in Michigan. My hunch is that DuPont is in the
driver's seat on this one.

~~~
rmason
Dow is headquartered in Midland, Michigan. Think of it as a one company town.
The worry in state is that this is going to destroy the town.

Kind of like when Chrysler moved out of Highland Park (near Detroit) and they
lost 80%+ of their tax revenue and never recovered.

------
TheBiv
>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.”

Seminal indeed.

~~~
saosebastiao
$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.

~~~
cschmidt
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.)

~~~
ethbro
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?

~~~
HarryHirsch
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.

~~~
ethbro
That seems like a terrible idea from what I've heard about factory IP concerns
in China. Or are labs more trustworthy?

~~~
HarryHirsch
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.

------
necessity
Fun fact about Dow:

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).

* [https://en.wikipedia.org/wiki/Dow_Chemical_Company#cite_note...](https://en.wikipedia.org/wiki/Dow_Chemical_Company#cite_note-12)

------
metalliqaz
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.

~~~
fweespeech
"Why yes, sir, we'd like to be 3 separate monopolies please."

~~~
fennecfoxen
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.

~~~
dragonwriter
> 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.

------
RyanZAG
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?

~~~
timdellinger
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.

~~~
Cyph0n
But doesn't the FTC look at US companies? If a merger results in a monopoly
locally, isn't that enough to warrant denying it?

~~~
rhino369
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.

~~~
hga
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....)

------
jawns
Delawarean here!

DuPont is one of my state's largest private-sector employers, and beyond that,
the Dupont family's influence on Delaware is hard to overstate.

Here are a few stories from my former employer, The (Wilmington, Del.) News
Journal, about the merger, touching on its potential effects on the state:

[http://www.delawareonline.com/story/news/2015/12/11/dupont-a...](http://www.delawareonline.com/story/news/2015/12/11/dupont-
and-dow-combine-merger/77138022/)

[http://www.delawareonline.com/story/money/2015/12/10/under-d...](http://www.delawareonline.com/story/money/2015/12/10/under-
dow-dupont-merger-del-unlikely-retain-businesses/77109204/)

By the way, did you know that DuPont's longtime CEO Ellen Kullman resigned
just a couple of months ago?

[http://investors.dupont.com/investor-relations/investor-
news...](http://investors.dupont.com/investor-relations/investor-
news/investor-news-details/2015/Ellen-Kullman-to-Retire-as-Chair-and-CEO-of-
DuPont/default.aspx)

Her exit came after winning a proxy battle led by activist investor Trian
Partners:

[http://www.forbes.com/sites/antoinegara/2015/10/05/ellen-
kul...](http://www.forbes.com/sites/antoinegara/2015/10/05/ellen-kullman-bows-
out-at-dupont-amid-activist-fight-leaving-transformation-unfinished/)

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:

[http://www.usatoday.com/story/money/2015/07/15/nelson-
peltz-...](http://www.usatoday.com/story/money/2015/07/15/nelson-peltz-dupont-
activist/30182223/)

It's hard to imagine that the timing of the merger so soon after her departure
is coincidental.

Sounds like Kullman won the battle but not the war.

~~~
AstroJetson
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.

------
tptacek
... but will then break up into three independent publicly traded companies,
one focusing on agriculture, one on materials, and one on specialty products.

~~~
alecco
Do you imply a single landline provider, a single mobile provider, and a
single ISP wouldn't be considered a monopoly?

~~~
tptacek
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

------
godzillabrennus
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.

~~~
ethbro
It marked the height of bad mergers only in _hindsight_. Big mergers are
always hard, but that doesn't make them a bad idea.

I was looking for a summary of the internet and found this lovely video gem:
[https://www.coursera.org/learn/internetgiants/lecture/jCXgb/...](https://www.coursera.org/learn/internetgiants/lecture/jCXgb/the-
state-of-the-internet-circa-2000)

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."

------
calvinbhai
If "DuPont culture" mentioned in the comments is true, I hope they help Bhopal
Disaster victims get the justice they deserve.

Bhopal Disaster happened because of Union Carbide(wholly owned subsidiary of
Dow chemicals)

~~~
cschmidt
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.

~~~
calvinbhai
Not denying this. Probably the lawyers ensured there exists no culpability on
the buyer, for UC's past sins.

But, Dow, and now DuPont morally owe a lot, to the Bhopal Gas Disaster
victims.

------
xixi77
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?

Edit: Wednesday's article:
[http://www.nytimes.com/2015/12/09/business/dealbook/dow-
chem...](http://www.nytimes.com/2015/12/09/business/dealbook/dow-chemical-and-
dupont-are-said-to-be-in-merger-talks.html?ref=topics) \-- mentions the future
split into 3 companies; does not mention the layoff details or dual
headquarters though :)

------
theophrastus
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"

------
anon1mous
Dow and DuPont have been loosing a lot of customers to BASF in the last 5
years or so. Especially in the area of nano materials.

~~~
timdellinger
Dow sells nano materials? There's a market for nanomaterials??

------
pvnick
>Their innovations include a sweeping variety of now-ubiquitous chemicals,
including ... chlorine

Really? That's impressive, to have invented an element. Surely this must be a
method of storing and transporting chlorine and not the halogen itself.

~~~
_delirium
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.

------
bbulkow
We need the competition, I don't understand why as a society we would want a
megacompany controlling the international chemical market.

~~~
joslin01
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.

~~~
hussong
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).

------
ClayFerguson
So we can expect the price of glassware and plastics to what, at least double
right? Capitalism. Gotta love it. If you're rich.

------
kiriberty
Wow, DOJ will be busy.

~~~
darkstar999
Why DOJ? Wouldn't it be the FTC involved with this?

~~~
adventured
The FTC will be involved. The DOJ can step in and sue to try to stop mergers
at their choosing. For example:

"Justice Department Files Antitrust Lawsuit to Stop Electrolux from Buying
General Electric's Appliance Business"

[http://www.justice.gov/opa/pr/justice-department-files-
antit...](http://www.justice.gov/opa/pr/justice-department-files-antitrust-
lawsuit-stop-electrolux-buying-general-electrics-appliance)

------
NittLion78
Anyone else notice the headline was "jaw-dropping" but the URL was "job-
dropping"?

~~~
jedberg
No but that's hilarious. I wonder if it was intentional.

------
littletimmy
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?

~~~
pvnick
>Can't we stop this consolidation

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.

~~~
golergka
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.

