Source:ICIS News

HOUSTON (ICIS)–Friday’s announcement of a merger of equals between US-based Dow Chemical and DuPont will result in about $3bn in cost synergies, with $1.5bn coming from material science and $1.3bn coming from agriculture, the companies said.

Dow and DuPont plan to spin off and list three companies – agriculture, material science and specialty products – within 18-24 months after the merger closes.

The agricultural company would combine their seed and crop protection businesses, with total pro forma 2014 sales at $19bn.

The agriculture business will likely have the most overlap among the three spun-off companies. That will lead to more scrutiny from anti-trust regulators. Credit Suisse said the overlap lies in crop-protection chemicals, with herbicides being the most likely place for divestments.

DowDuPont expects to find synergies in eliminating duplication in the merged company’s research and development (R&D) programmes. Others should come from cost savings in seed production and commercialisation. A third area of synergies includes supply chains and what DowDuPont calls global-site optimisation.

The specialty products company would include DuPont’s Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications as well as Dow Electronic Materials business. Combined pro forma 2014 sales were approximately $13bn.

Any overlap would be limited to the electronics business, since all of the remaining units come from DuPont.
DowDuPont expects $300m in cost synergies, achieved mainly through R&D, raw-material purchasing and what it called “optimising” the combined electronics business.

The material science company would consist of DuPont’s Performance Materials segment as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions (excluding Dow Electronic Materials) divisions. Combined pro forma 2014 revenue for material science was approximately $51bn.

Material science could achieve the most cost synergies among the three spun-off companies, at $1.5bn.

One of these synergies would come from feedstock. Dow’s Performance Plastics and Infrastructure Solutions makes several, such as olefins, acrylates, methacrylates and vinyl acetate monomer (VAM).

Dow has crackers around the world, and it is building a new one as well as a propane dehydrogenation (PDH) unit in Freeport, Texas.

By contrast, DuPont has just one 680,000 tonne/year cracker in Orange, Texas, according to ICIS plants and projects.

Dow’s feedstock opens the possibility of integration with DuPont’s downstream plants. The combined company could also gain negotiating power for buying feedstocks.

The two companies also share end markets and applications, with both being strong in automobiles, packaging and construction. These three end markets account for 70% of what would be DowDuPont’s revenue.

This could lead to opportunities for cross selling, the companies said.

Company officials pointed to other more general sources of synergy. It could cut costs among its manufacturing, sales and R&D facilities. DowDuPont could also “enhance operational excellence in product-cost efficiencies”.
According to annual reports, the products that the proposed DowDuPont material science company produces have little overlap – even though they serve the same end markets.

The following table lists DuPont’s Performance Polymers products, including brand names.
DuPont Performance Polymers:
Zytel nylon resins

Delrin acetal resins

Hytrel polyester thermoplastic elastomer resins

Tynex filaments

Vespel polyimide-based plastics

Vamac ethylene acrylic elastomer

Kalrez perfluoroelastomer

Surlyn ionomer resins

Bynel coextrudable adhesive resins

Elvax ethyl vinyl acetate (EVA) resins

Nucrel and Elvaloy copolymer resins

Dow’s Performance Materials business produces polyurethanes.

Dow’s Consumer Solutions includes the Consumer Care and Automotive Systems sub-segments. The third sub-segment, Electronic Materials, is going to the specialty-chemicals business.

Consumer Care produces chemicals used in personal-care, cleaning, pharmaceuticals, food and nutrition. Many of these are derived from cellulosics.

Automotive systems provides adhesives, plastics, fluids and polyurethanes to automobile producers.