DowDuPont Is Splitting Into 3 Companies. Here’s Everything You Need to Know.
Dow stock (DOW) is already trading as an independent company. Here’s everything you need to know about all three companies to select the investment that best fits your needs.
What is DowDuPont?
It’s a chemical conglomerate. It competes with companies such as BASF, LyondellBasell Industries (LYB), and even the chemical divisions of Exxon Mobil (XOM). DowDuPont also competes with the specialty chemical division of other conglomerates like 3M (MMM).
How was DowDuPont formed?
DowDupont is the combination of Dow Chemical and the 217-year old EI du Pont de Nemours. The merger and de-merger of legacy-Dow and legacy-DuPont has taken a while, more than three years. The stock of the combined company has suffered as a result. DowDuPont stock (ticker: DWDP) has returned about 4% a year on average over the past three years, worse than the 16% average annual return of the Dow Jones Industrial Average over the same span.
Why is DowDuPont splitting up?
Sometimes conglomerates work well because business diversity insulates corporations from the vagaries of the business cycle—one division is strong, while another struggles. Another argument for conglomerate structures is cash-based. Cash flow from one unit can be used to fund R&D or capital spending in another division. Others, however, believe conglomerates are difficult to manage
When it’s all said and done, the biggest change from these deal machinations is the combination of the legacy-Dow agricultural chemical business that makes pesticides, herbicides, and fungicides, and the legacy-DuPont agricultural seed business. DuPont’s Pioneer business makes corn and soybean seeds (among other products) for farmers to plant each Spring. DuPont bought Pioneer in 1999.
What does Dow make?
Dow makes commodity chemicals like polyethylene, silicone, and paint additives, among other products. Commodity chemicals are usually high volume, bulk products that are priced off a spread over raw material costs. Most plastics are manufactured from either crude oil derivatives or natural gas, making oil prices important and the crude oil-to-gas ratio very important. Oil-to-gas ratio determines what commodity chemical assets are lowest cost around the globe. Many firms make commodity chemicals from either natural gas — common in the U.S. — or from crude oil derivatives.
What does DuPont make?
DuPont makes specialty chemicals like advanced plastics, adhesives, and enzymes for end markets including cars, consumer goods, and electronics. Specialty chemicals are usually lower volume, high margin products protected by intellectual property or manufacturing know-how.
What does Corteva make?
Corteva makes agricultural seeds, traits, and chemicals. The business is more akin to specialty chemicals than commodity chemicals, but there are even health care characteristics in this business. Many products are protected by patents like prescription drugs. What’s more, the FDA approves agricultural chemicals just like it does prescription drugs.
Seeds and chemicals are straight forward to understand—you plant seeds and spray chemicals—but traits are more difficult to grasp. Traits are often genetic characteristics bred directly into the seeds. Herbicide tolerance, drought resistance, and pest defenses have all been developed and bred into products. Traits are also often associated with the term “genetically modified organism” that creates consumer angst. In this case, genetic modification means scientists take a gene from another plant—say, a cactus for drought resistance—and literally insert it in the genome of a corn plant. It is cross-species modification.
There has been a lot of deal-making in the agricultural space in recent years. Business managers started to see value in combining seed and chemical franchises. Bayer (BAYN.Germany) purchased Monsanto and Syngenta was snapped up by China National Chemical in 2018, and now Dow and Pioneer are wedded. The combinations allow companies to cut costs and share R&D. It also helps competitors keep up. When one company in an industry tries a new strategy — like combining seeds and chemicals — other firms will often follow.
When will Corteva stock start trading?
Corteva stck will begin trading on a “when issued” basis about eight to 10 days before shares actually show up in your brokerage account. You can buy or sell shares then if you like, but the transaction won’t settle until after the spinoff transaction is complete. Shares will begin trading in a regular way on June 1.
Is there a windfall gain?
Sadly, no. The money you have in the three companies—if you don’t sell anything—will closely approximate the money you had in DowDuPont stock before the spinoffs occurred. You will just own stock in three companies instead of one.
Does my dividend payment change?
Not really. You will get three dividend checks instead of one. Dow, the commodity chemical producer, will pay the highest dividend, about $2.80 per Dow share annually. DuPont stock is yielding about 1.5% today and Corteva is targeting $400 million in annual dividend payments when it beings trading as a separate company. The Coreva dividend payments will reduce DowDuPont’s payout. The total amount received by investors will be unchanged.
What are the three companies worth?
Dow is already trading. It’s worth $55.25 per share. DowDuPont is worth $113 billion, including debt, but that is an amalgamation of DuPont and Corteva. Agricultural franchises traded at a premium valuation multiple in the past because they could be bought by larger companies, they grew faster, they have more intellectual property protection than the average firm, and agricultural businesses are materially different than other types of businesses.
If Corteva trades for a premium multiple it could be worth about $45 billion. That’s 40% of DowDuPont’s value today which leaves the DuPont specialty chemical business worth about $68 billion. For DuPont, that’s about 14 times Ebitda (earnings before interest, taxes, depreciation and amortization), about a 15% premium to other specialty chemical companies.
Corteva’s share count is still a mystery, so $45 billion can’t be converted into a price per share.
Why are agricultural businesses different?
Agriculture is all about weather. It’s far less connected to the overall economy. That makes its asset returns in agriculture uncorrelated with other stock prices. Investors love that for a variety of reasons we won’t go into here.
But the reason for the uncorrelation is that food demand is very stable and we grow most of what we eat each year. Agriculture is a supply-driven business. Total soybean consumption, for instance, barely budged during the financial crisis, while U.S. auto sales plummeted. People have to eat.
Which stock should I own?
That’s a personal question. None of the three franchises are classic growth companies, so this is a question for traditional value investors.
Dow will have the highest dividend yield. DuPont will have Ed Breen, a popular CEO who created a lot of value when he ran Tyco after Dennis Kozlowsk. And Corteva is an agricultural investment.
Income generation, quality management, and a noncorrelated, agricultural asset are the choices. But you have to decide for yourself.
Write to Al Root at [email protected]
Dow completes separation from DowDuPont
Becomes a more focused and streamlined materials science company Launches with global scale and leading positions in three attractive consumer-driven segments: packaging, infrastructure and consumer care Begins regular way trading on April 2 under the “DOW” ticker symbol
MIDLAND, Mich. - April 01, 2019 - Today Dow successfully completed its separation from DowDuPont, becoming a more focused, streamlined, and leading materials science company. Dow launches with global scale and leading positions in three attractive consumer-driven segments: packaging, infrastructure and consumer care. Dow is now even better positioned to drive revenue growth and innovate for its customers, leveraging three advantaged building blocks – ethylene, propylene and silicones – to power one of the deepest chemistry sets in the industry.
The distribution of Dow common stock was completed after market close today, with each DowDuPont stockholder of record receiving one (1) share of Dow common stock for every three (3) shares of DowDuPont common stock held as of the close of business on March 21, 2019. DowDuPont stockholders will also receive cash in lieu of any fractional Dow shares. Dow common stock will begin trading on the New York Stock Exchange (NYSE) under its historical symbol “DOW” on April 2, 2019, and will join the Dow Jones Industrial Average (DJIA) index.
“Today marks the beginning of a new and exciting chapter for Dow,” said Jim Fitterling, chief executive officer. “The changes we have made to Dow’s portfolio, cost structure and mindset are significant. The new Dow is a more focused and streamlined company with a clear playbook to deliver long-term earnings growth and value creation for all stakeholders. Team Dow is well positioned to achieve our ambition of becoming the most innovative, customer-centric, inclusive and sustainable materials science company. We have all the tools in place to innovate more quickly, to operate more productively, and to invest more prudently to deliver value creating growth, higher returns and enhanced shareholder value.”
“Today we celebrate this milestone with our customers, communities, investors, and Team Dow,” said Howard Ungerleider, president and chief financial officer. “With our focused portfolio, streamlined cost structure, disciplined approach to capital allocation, and shareholder friendly capital return framework, the new Dow has the right capabilities and team to drive best-in-class operating and financial performance.”
The new Company will be referred to by the brand name “Dow,” acknowledging the remarkable legacy while also reflecting the company-wide evolution to a materials science solutions provider. Dow is adopting a new brandline – “Seek Together” – which is a call to action that highlights the value of collaboration to deliver innovation and solutions to our customers and value chains. It represents the way Dow seeks to collaborate with all of its stakeholders as it delivers on its ambition. The iconic Dow Diamond, which has stood as the Company’s logo for more than 120 years, is unchanged and will continue to be a core element of the Dow brand.
More information about Dow and its investment thesis is available on its new Investors Relations website: investors.dow.com.
Dow (NYSE: DOW) combines one of the broadest technology sets in the industry with asset integration, focused innovation and global scale to achieve profitable growth and become the most innovative, customer centric, inclusive and sustainable materials science company. Dow’s portfolio of performance materials, industrial intermediates and plastics businesses delivers a broad range of differentiated science-based products and solutions for our customers in high-growth segments, such as packaging, infrastructure and consumer care. Dow operates 113 manufacturing sites in 31 countries and employs approximately 37,000 people. Dow delivered pro forma sales of approximately $50 billion in 2018. References to Dow or the Company mean Dow Inc. and its subsidiaries. For more information, please visit www.dow.com or follow @DowNewsroom on Twitter.
Cautionary Statement About Forward-Looking Statements
This presentation contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance, financial condition, and other matters, and often contain words such as “believe,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “seek,” “should,” “strategy,” “will,” “will be,” “will continue,” “will likely result,” “would,” “target” and similar expressions, and variations or negatives of these words. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.
Forward-looking statements include, but are not limited to, expectations as to future sales of Dow’s products; the ability to protect Dow’s intellectual property in the United States and abroad; estimates regarding Dow’s capital requirements and need for and availability of financing; estimates of Dow’s expenses, future revenues and profitability; estimates of the size of the markets for Dow’s products and services and Dow’s ability to compete in such markets; expectations related to the rate and degree of market acceptance of Dow’s products; the outcome of certain Dow contingencies, such as litigation and environmental matters; estimates of the success of competing technologies that may become available and expectations regarding the separations and distributions and the benefits and costs associated with each of the foregoing.
Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Forward-looking statements are based on certain assumptions and expectations of future events which may not be realized and speak only as of the date the statements were made. In addition, forward-looking statements also involve risks, uncertainties and other factors that are beyond Dow’s control that could cause Dow’s actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. Additionally, there may be other risks and uncertainties that Dow is unable to identify at this time or that Dow does not currently expect to have a material impact on its business.
Risks related to our separation from DowDuPont, Inc.
Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. For a more detailed discussion of Dow’s risks and uncertainties, see the “Risk Factors” contained in Dow’s registration statement on Form 10, as amended, filed with the Securities and Exchange Commission.
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American chemical company from 2017
For the predecessor company, see DuPont (1802–2017). For the companies spun off in 2019, see Dow Inc. and Corteva. For other uses, see Dupont (disambiguation).
DuPont de Nemours, Inc., commonly known as DuPont, is an American company formed by the merger of Dow Chemical and E. I. du Pont de Nemours and Company on August 31, 2017, and the subsequent spinoffs of Dow Inc. and Corteva. Prior to the spinoffs it was the world's largest chemical company in terms of sales. The merger has been reported to be worth an estimated $130 billion. With 2018 total revenue of $86 billion, DowDuPont ranked No. 35 on the 2019 Fortune 500 list of the largest United States public corporations. DuPont is headquartered in Wilmington, Delaware, in the state where it is incorporated since the founding of the old DuPont in 1802.
Within 18 months of the merger the DowDupont was split into three publicly traded companies with focuses on agriculture (Corteva), materials science (Dow Inc.), and specialty products (DuPont).
On December 11, 2015, E. I. du Pont de Nemours and Company, commonly known as "DuPont", announced a merger with Dow Chemical Company, in an all-stock transaction. The combined company, DowDuPont, had an estimated value of $130 billion, being equally held by both companies’ shareholders, while also maintaining its two headquarters. The merger of the two largest U.S. chemical companies closed on August 31, 2017.
Both companies' boards of directors decided that following the merger, DowDuPont would pursue a separation into three independent, publicly traded companies: an agriculture, a materials science, and a specialty products company.
- The agriculture business—Corteva Agriscience— unites Dow and DuPont's seed and crop protection unit, with an approximate revenue of $16 billion.
- The materials science segment—called Dow—consists of DuPont's Performance Materials unit, together with Dow's Performance Plastics, Materials and Chemicals, Infrastructure and Consumer Solutions, but excludes Dow's Electronic Materials business. Combined revenue for this branch totals an estimated $51 billion.
- The specialty products unit—called DuPont— includes DuPont's Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications, as well as Dow's aforementioned Electronic Materials business. Combined revenue for Specialty Products total approximately $12 billion.
Advisory Committees were established for each of the businesses. DuPont CEO Ed Breen would lead the Agriculture and Specialty Products Committees, and Dow CEO Andrew Liveris would lead the Materials Science Committee. These Committees were intended to oversee their respective businesses, and would work with both CEOs on the scheduled separation of the businesses’ standalone entities. Announced in February 2018, DowDuPont's agriculture division is named Corteva Agriscience, its materials science division is named Dow, and its specialty products division is named DuPont. In March 2018, it was announced that Jeff Fettig would become executive chairman of DowDuPont on July 1, 2018, and Jim Fitterling would become CEO of Dow Chemical on April 1, 2018. In October 2018, the company's agricultural unit recorded a $4.6 billion loss in the third quarter after lowering its long-term sales and profits targets.
In 2019, DuPont completed its spin off from DowDuPont.
In February 2020, DuPont announced that it is bringing back Edward D. Breen as its CEO after removing former Chief Executive Mark Doyle and CFO Jeanmarie Desmond less than a year after they assumed their roles. Lori D. Koch, previously head of investor relations, assumes the CFO position.
The European Commission opened a probe to assess whether the proposed merger was in line with the EU's respective regulations. The Commission investigated whether the deal reduced competition in areas such as crop protection, seeds and petrochemicals. The closing date for the merger was repeatedly delayed due to these regulatory inquiries.
Ed Breen said the companies were negotiating possible divestitures in their pesticide operations to win approval for the deal. As part of their EU counterproposal, the companies offered to dispose of a portion of DuPont's crop protection business and associated R&D, as well as Dow's acrylic acid copolymers and ionomers businesses.
The remedy submission in turn delayed the Commission's review deadline to April 4, 2017. The intended spins of the company businesses were expected to occur about 18 months after closing. According to the Financial Times, the merger was "on track for approval in March" 2017. Dow Chemical and DuPont postponed the planned deadline during late March, as they struck an $1.6 billion asset swap with FMC Corporation in order to win the antitrust clearances. DuPont acquired the Corporation's health and nutrition business, while selling its herbicide and insecticide properties.
The Commission conditionally approved the merger as of April, 2017, although the decision was said to consist of over a thousand pages and was expected to take several months to be released publicly. As part of the approval, Dow must also sell off two acrylic acid co-polymers manufacturing facilities in Spain and the US. China conditionally cleared the merger in May, 2017.
According to former United States Secretary of Agriculture during the Clinton administration, Dan Glickman, and former Governor of Nebraska, Mike Johanns, by creating a single, independent, U.S.-based and - owned pure agriculture company, Dow and DuPont would be able to compete against their still larger global peers.
On the other hand, if Monsanto and Bayer, the 1st and 3rd largest biotech and seed firms, together with Dow and DuPont being the 4th and 5th largest biotechnology and seed companies in the world respectively, both went through with the mergers, the so-called "Big Six" in the industry would control 63 percent of the global seed market and 76 percent of the global agriculture chemical market. They would also control 95 percent of corn, soybeans, and cotton traits in the US. Both duopolies would become the "big two" industry dominators.
The merger formed the world's largest chemical company in terms of sales. DuPont is headquartered in Wilmington, Delaware.
Since the spin off, the company has adapted its marketing and branding in order to establish a new identity that is "fundamentally different" from DowDuPont. The company published a list of sustainability commitments to be achieved by 2030 in November 2019. DuPont was fined over $3 million for environmental violations in 2018. In 2019, DuPont led the Toxic 100 Water Polluters Index.
The film Dark Waters showcased a legal case against the predecessor DuPont related to contaminating a town in West Virginia and many Americans with unregulated toxic chemicals which poisoned thousands of individuals. This case led to DuPont finally settling all 3,535 cases for $670.7 million.
DuPont spent $15.8 million on lobbying expenses and campaign donations in 2017.
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DuPont, Dow Closing Date Merger of Equals
Cautionary Notes on Forward Looking Statements
This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed transaction and the anticipated benefits thereof. These and other forward-looking statements, including the failure to consummate the proposed transaction or to make or take any filing or other action required to consummate such transaction on a timely matter or at all, are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks, as well as other risks associated with the proposed merger, are more fully discussed in the joint proxy statement/prospectus included in the Registration Statement filed with the SEC in connection with the proposed merger. While the list of factors presented here is, and the list of factors presented in the Registration Statement are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. Neither Dow nor DuPont assumes any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.
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DuPont de Nemours Inc.
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After the DowDuPont Split: An Investor’s Guide to the 3 New Companies
Less than two years after its formation, DowDuPont -- the chemical giant formed by the merger of Dow Chemical and E.I. du Pont de Nemours -- is now history. In its place are new spinoffs Dow (NYSE:DOW), DuPont de Nemours (NYSE:DD), and Corteva (NYSE:CTVA).
But even though two of the three companies share the names -- and ticker symbols -- of their predecessors, they aren't the same businesses. It's easy to see how this could get very confusing very quickly. Let's break it down so investors -- especially those who owned DowDuPont stock and now own shares of all three companies -- know what's in their portfolios.
DowDuPont's spinoffs are top companies in the chemical industry. Image source: Getty Images.
The new Dow: Materially strong
Market cap: $33.5 billion
Focus: Performance chemicals, chemical additives, packaging
While the old Dow and DuPont had many different product lines serving dozens of industries, the portfolios of both have been streamlined, leaving Dow with the bulk of the companies' "performance chemicals" assets. These include a lot of names with which you probably aren't familiar. (Paraloid ring a bell, anyone? Or Keldax?) That's because most of these products aren't sold directly to consumers, but rather to other companies as components to finished goods.
Paraloid, for example, is an acrylic resin that increases impact and heat resistance. It can be used on furniture, concrete floors, or in paint (among many other uses). Keldax is a resin that can be used as an adhesive or as a sound barrier in automobiles. And you'll probably never encounter those product names ever again. Basically, if it's a chemical that gets put onto or into something else, it probably ended up with Dow.
Although the new Dow is focused on these and other materials like coatings and lubricants, its products still serve a wide variety of industries, including automaking, construction, and packaging. That should provide sufficient portfolio diversity to keep the company from relying too much on a single sector.
Since most of its assets are mature, Dow is expected to be more of a value play than a growth play, and should pay a substantial dividend. At the company's current price, the annual dividend yield looks to be around 6.1%, which is robust for this sector.
Because the company's spinoff from DowDuPont is so recent, it's going to be tough to figure out exactly how the company is faring as a stand-alone entity (including how likely it is that the yield is going to stay so high). So far, however, the results seem encouraging. In Q2, Dow's first as a stand-alone company, CEO Jim Fitterling announced $75 million in year-over-year savings in combined selling, general, and administrative (SG&A) expenses and research and development (R&D) costs, bringing the company's cumulative synergy savings to $1.1 billion since the merger of DuPont and Dow.
The new DuPont: Growing fast
Market cap: $49.6 billion
Focus: Specialty materials, high-growth materials, nutrition
DuPont's portfolio has been described as "specialty materials," which is pretty vague. It seems as if most of the products that stayed with DuPont are materials that can be made into finished products by themselves, as opposed to Dow's products, which are mostly components of or coverings for other materials or goods. This would explain why Tyvek construction wrap -- probably the most recognizable brand name in DowDuPont's portfolio -- stayed with DuPont.
But unlike Dow's products, many of the materials in DuPont's portfolio are newer and expected to have higher growth rates. Kalrez, for example (don't you love all these crazy names?), is used to make seals for semiconductor and chemical processing. It's estimated to have a 10% growth rate through 2022. Management has also made clear that the company is focusing its R&D efforts on high-growth, high-return areas as well, with a stated goal of accelerating its growth. The company is also expected to generate higher margins than Dow.
Because growth is the focus, DuPont's dividend yield is currently much lower than Dow's. At a quarterly $0.30 a share and a current share price of about $66.50, DuPont is yielding only about 1.8%. Not terrible, but growth is clearly the focus here.
Corteva: Turnaround or throwaway
Market cap: $21.8 billion
Focus: Agricultural chemicals, seeds
It's been a tough year for agricultural markets, particularly in North America. Flooding, trade issues, and other problems have hit North American farmers hard. And that's particularly tough for DowDuPont's agricultural sciences spinoff Corteva, which derives more than half its revenue from North America. Unlike Dow and DuPont, Corteva is a single-sector investment, which means that its future is dependent on agricultural markets.
If the problems in that market persist, Corteva investors could see a rough road ahead. But the company is also trying to exploit some big opportunities, including new product launches and a foray into digital agriculture, which brings technological and analytical tools to farmers to help them maximize efficiency and increase crop yields.
Because it's such a new company, and still working out the effects of its spinoff, it's tough to know how well positioned Corteva is for success. Currently, its dividend and share price work out to about a 1.8% yield, similar to its cousin DuPont.
What investors need to know
By streamlining its businesses and spinning them off, DowDuPont hoped to unlock value for its shareholders, who now should find themselves owning shares of all three of these companies (owning three shares of DowDuPont before the spinoffs would have gotten you one share each of Dow, DuPont, and Corteva). So far, that's been a winning proposition: Three shares of DowDuPont at market close on April 1 were worth about $111, while one share each of the three new companies currently trade at a combined $140.
It may take awhile, however, for the dust to settle, so it's probably not a good idea to sell shares you already own until a clearer picture emerges. As for buying shares, it's a bit early to make judgments, but Dow and DuPont are looking like strong choices for value and growth investors, respectively.
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What is your name. asked the older one. - Genka, slightly embarrassed, answered the boy. - And me Sergey, ~ the man said amiably.