Dow and DuPont on the brink of a merger

Dow and DuPont on the brink of a merger

The consolidation of these US chemical corporations will be a game changer for the personal care and cosmetics industries and have staggering economic implications on a regional, national, and global scale.

The Wall Street Journal is reporting that merger talks between Dow and DuPont are in an advanced stage and that the deal could well close before the year is out.

Industry consequences

If Dow and DuPont become one, there will be fewer suppliers for beauty manufactures to purchase chemicals from. Plus in the short-term, the merger would mean fewer jobs on the chemical side of the industry.

In the state of Louisiana, where both companies have operations, concern is already mounting about how the companies would consolidate sites. One facility that may be directly affected is DOW’s Amerchol Greensburg site, where 35 employees make chemicals for cosmetics, skin care and hair care.

Cost-cutting follows closely on the heels of any merger. And, the two companies certainly have numerous overlapping roles. A merged Dow-DuPont will wisely and predictably streamline operations.

“We don’t know how much overlap there is between DuPont and Dow Chemical....But you won’t have multiple R&D departments,” KenHolsing, president of Dow North American Labor Council told The Advocate.

It’s therefore reasonable to ask if a merger will limit chemical innovation. With fewer R&D staff, it is possible that fewer new ideas and opportunities will come to market. Up to now, the companies have both been known for innovation.

Inventions and earnings

Dow and DuPont made Thompson Reuters 2015 innovators list. Corporations earn a spot on the list for the number of patents granted, as well as the marketability and reach of each idea. “We can definitely say that those organizations, appearing on the top 100 list, outperformed other organizations in terms of revenue, in terms of profit,…and also in terms of job creation,” says Bob Stembridge, senior IP analyst for Thomson Reuters.

Gender balance at the executive and board lever correlates to profit as well. Dow and DuPont both received recognition from the Women’s Forum of New York this year for having 20%+ women on their corporate boards.

Each company is currently valued at just under $60bn. And The Advocate is reporting that “the size of the deal, thought to be the largest in the chemical industry’s history, could require the combined company to break into two or three separate businesses.”

Dennis K. Berman of the Wall Street Journal sees the impending merger as a good example of a bad economic situation in the US. “It’s as if these two companies—absolute bedrock of U.S. industrial might—have given up faith in themselves and their futures,” he wrote yesterday.  

While the merger makes sense as an effort for US business to confront challenges posed by China, activist investors, and stockholder expectations it also, according to Berman, is a very disheartening development for the future of the country.

All the same, a merged Dow-DuPont would stand as the second largest chemical company in the world, behind only BASF SE.

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