Chemical titans DuPont and Dow Chemical Co have agreed to combine in an all-stock merger valued at $130 billion in a first step toward breaking up into three separate businesses, a move that pleased activist investors and could trigger more consolidation.
The “deal of three centuries,” as Wells Fargo analyst Frank Mitsch dubbed it, combines two of the biggest and oldest U.S. chemical producers and will generate cost and tax savings.
Dow and DuPont shares fell on Friday after spiking earlier in the week following reports of negotiations.
The deal, announced on Friday, will face intense regulatory scrutiny, analysts said, especially over combining their agricultural businesses, which sell seeds and crop protection chemicals, including insecticides and pesticides.
Executives from both companies said the agrichemicals businesses have little overlap and any asset sales would likely be minor.
Potential tax savings were one reason for the complicated merger-before-breakup deal, analysts said. “They need to merge first in order for the subsequent spinoffs to qualify as tax-free transactions in the United States,” said SunTrust Robinson Humphrey analyst James Sheehan.
Dow shareholders would own 52 percent of the new company after preferred shares are converted, the companies said. The agreement includes a $1.9 billion termination fee under specified circumstances, such as rejection by shareholders.
The merger, one of the biggest of the year, would allow Dow and DuPont to rejig assets based on the diverging fortunes of their businesses.
The companies have been struggling with falling demand for farm chemicals due to slumping crop prices and a strong dollar, even…