DowDuPont an Ag Powerhouse

Combined Company Would Marry Seed, Crop Protection Strengths

DowDuPont will bring together strong, balanced portfolios in seed and crop protection, DuPont Chairman and CEO Ed Breen said on Friday. (Graphic courtesy of Dow Chemical and DuPont)

OMAHA (DTN) -- The merger of Dow Chemical and DuPont announced by the companies Friday makes the new combined company, DowDuPont and its future agricultural spinoff into the largest seed and crop-protection provider in the industry.

Dow and DuPont executives have touted the new agricultural company as a seamless marriage that will present growers with a newly diverse portfolio of seed and pesticide offerings worth $19 billion. "We will have the most complete portfolio of any ag company," said Ed Breen, chairman and chief executive officer for DuPont and the new chief executive officer of the combined company, DowDuPont.

However, various agricultural stakeholders are already urging scrutiny of the deal. Analysts have pegged the combined corn and soybean market share of the new company near 40% each.

Diana Moss, president of the American Antitrust Institute, cautioned that industry consolidation could bring higher costs to farmers and consumers alike.

"That's a market landscape that doesn't promote competition, entry, and innovation," Moss said in a statement. "Farmers could be squeezed even more and consumers could pay higher prices."

Breen said DowDuPont anticipates it would be able to close the deal sometime in the second half of 2016. He added that he did not expect any need for antitrust divestments because the two companies largely complement each other in the major sectors.

"It would be very limited where there are product overlaps," he said.

SIZE MATTERS

"Consolidation in the ag industry is a natural step, and this transaction is the most logical and compelling combination," Breen said in a conference call on Friday. "Simply put, we are creating the world's leading agricultural company."

Breen said the combination will create a diverse mix of seed products across corn, soybeans, cotton and other crops. In crop production, the companies also combine an array of insecticides and herbicides with emerging products in fungicides. Breen said the combined agricultural company would "really give our end consumer, our farmer, a lot of product choice here and diversity of choice, which is going to be a real advantage from a market share standpoint for us."

DuPont already had about $11 billion in ag sales in 2014, weighted more heavily toward seeds than chemicals. Dow had about $7 billion in ag sales. Combined, though, the companies see their seed and crop-protection mix topping $19 billion in revenue, which factored in the AgroFresh divesture. According to a DowDuPont chart, the combined company would have about $3 billion more in sales than Monsanto, the next largest competitor, and Syngenta, which has about $14 billion in sales. Other sector leaders include Bayer with about $12 billion in crop-protection and seed sales, and BASF, which has about $7 billion in crop-protection sales.

AgroFresh is a specialty chemical business Dow sold for $860 million earlier this year. AgroFresh specifically focused on chemicals meant to help keep produce fresh.

DowDuPont will combine into a single company with roughly $81 billion in revenue, and then separate different industrial sectors into three individual companies focusing on agriculture, material sciences and specialty products.

Senate Judiciary Committee Chairman Chuck Grassley, a Republican and an Iowa farmer, said in a statement that the deal "demands serious scrutiny" to ensure it doesn't leave farmers with an anti-competitive marketplace. "I'll be listening to Iowa farmers and consumers about any concerns they may have with this proposal, and the Judiciary Committee will be exercising its appropriate oversight function," he added.

Both the National Corn Growers Association and the American Soybean Association also released statements vowing to analyze the deal and ensure it did not negatively affect the marketplace for farmers.

STRONGER TOGETHER

Both companies' agricultural holdings stand to benefit from the other, said Nathan Fields, director of biotechnology and economic analysis at the National Corn Growers Association.

"At first blush, you do seem to have a new hegemon on the block here," Fields said of the combined holdings. "But it doesn't change a huge marketing mix on the seed side, since Dow's contribution there was small, and it does allow the new company now to be equally strong on the chemical side."

Current weaknesses in agriculture were a particular focus for DuPont. The company's third-quarter report noted its international sales had seen a 30% decline in crop-protection sales and a 38% decline in seed sales in Brazil.

The merger will also throw at least one of DuPont Pioneer's current license agreements with another company into question. In 2013, Pioneer agreed to license Monsanto's Xtend soybeans, which are genetically engineered to tolerate glyphosate and dicamba. How the company will reconcile that agreement with Dow's competing Enlist crops, which can tolerate a herbicide mix of 2,4-D and glyphosate, remains to be seen, but DuPont's Breen did not seem concerned.

"When you look at the products that we're going to be combining there, the traits around Enlist and other things, it provides tremendous optionality for the growers," Breen said. "We're excited about the opportunities we think Enlist will present for us." He said Pioneer will still plan to launch Xtend soybeans commercially in 2016, depending on regulatory approval.

Breen and Dow CEO Andrew Liveris noted that each company was already undertaking plans to cut costs, but they expect to see even greater cuts, or "synergies," in a combined company. Savings throughout the total corporate structure over the first two years would range from $3.5 billion to $4.1 billion. In agriculture, the companies projected a cost savings of about $1.3 billion.

"In agriculture, we will gain significant synergies through seed-production cost efficiencies by maximizing the R&D programs of the two companies and through the optimization of our production and supply chains," Breen said.


Editor's note: DTN is partnered with DuPont in its Pioneer Encirca farm services program.

Chris Clayton can be reached at chris.clayton@dtn.com

Emily Unglesbee can be reached at emily.unglesbee@dtn.com

(CC/PS/AG/ES)