This has been in my queue for a while now. Now that it’s public, I will share some insights about this deal.

I still remember Dow for its problems with Agent Orange.   But, over the years, the company changed its ways.  By the early 1980’s, I was proud to be working with its consumer products division, developing new products and technologies (this division has since been sold to SC Johnson).   I also had the opportunity to work with the Dupont Company, before it was taken over by the Bronfman family, who merged it with Conoco, and perpetrated various other infirmities on the venerable firm.

Both of these companies have been around for a long time.  E.I. Dupont started with gunpowder (like Nobel of the Nobel Peace Prize) in the US in 1802.   Dow came along about a century later (1897) when electrochemistry was the big ticket item, making chlorine.    Over the decades, these two firms discovered, manufactured, and marketed  marvels of modern chemistry. As such, they were able to grow to a (potentially combined) annual turnover of some $ 90 billion, with some 111,300 employees between them.

Long before there was a Silicon Valley, these two firms employed the ‘fail fast, fail often” inventiveness.  They promoted scientific analysis of R & D efforts, while assuring the world a steady flow of great products.

But given the petrochemical commodity issues (with its very low margin products) and a strong dollar, the two companies have been shedding units.  Dupont dumped their performance chemicals group (paints and coatings), Dow zapped their chlorine and epoxy business with a sale to Olin Chemicals (which is why Ziploc bags no longer held their attention, among the other consumer products that they shed to SC Johnson).

Dupont has been trying to take over the seed behemoth, Syngenta AG.  That seems to have failed.  (Monsanto had already attempted to purchase Syngenta for $ 46 billion and were rebuffed, as well. Don’t worry- someone will get that prize. )

Dupont also tried to complete an agricultural deal with Dow, which would yield an entity that provides almost 1/5 of the world’s pesticides and be the third largest crop chemical supplier.  How big?   Had that single spinoff/merger occurred, it would control about 40% of the corn AND soybean market in the US. (The Dow-Dupont merger will still yield that result.)

Dow’s CEO, Andrew Liveris, has been trying to complete a merger deal with Dupont for some time (over a decade now), but had been repeatedly rebuffed.  Once Edward Breen became the CEO of Dupont (he’s a turnaround artist), the concept obviously resonated.

Both these premier American entities have a market capitalization of about $ 60 billion apiece.   Which makes this merger to be a merger of equals.  Of course, that assumes that merger will be approved by the various regulatory agencies.   (It seems to have a pretty good shot.  Because even though these firms operate in the same businesses, they provide different products to different sectors of those businesses- they don’t directly compete other than in corn seeds. For example, while they both are automotive suppliers, Dow provides adhesives and Dupont proffers under-the-hood specialties.)

But, even if the deal is approved, the combined entity will only exist for a matter of a few months. Because this will not be the typical merger to grow a bigger company.  Once the merger is complete, the new entity will self-destruct into three separate entities. Of course, the program will be to ensure these are all tax-free spinoffs!

The new entities will house the agricultural, materials/materials sciences, and specialty products that would result from the merger.   Each of the businesses would be pretty large firms on their own. And, you can bet that some pretty substantial businesses will be shed (because they won’t seem so substantial to the behemoths to be formed.)

Why would they disassemble?   Because both of these firms are being harassed by “activists” to increase their value.  (Nelson Peltz of Triad Partners has been harassing Dupont;  Dan Loeb of Third Point was Dow’s primary gadfly.) This “merger’ should really be read as a form of asset shedding, leaving shells of their former selves, probably leveraged to the hilt, so the “activists” can get ridiculous returns on their stock holdings, leaving firms that may or may not survive the proposed “improvements”.  You’ve heard the “activist’s”  manta- do more with less, cut costs, shed “useless” employees.

So, the idea behind the merger is to shed the vital future for the firms (and our economy)- R&D efforts. And, there’s also the 10% of Dow and Dupont employees to be ‘excessed’ in this potential fiasco. (Dupont has already earmarked some $650 million for ’employee separation costs’!)

But, what the merger really denotes is further proof that the American Dream is dead.  Because the American Dream would have these companies stick around and thrive.  These firms played to win over their (previous) lives.  Now, they need to scale back those dreams to provide “sensible growth” .  That term is read as leveraging assets to provide reasonable returns and dividends to the “activists”, cutting research and development.

We no longer have our companies playing to win- but “not to lose”.   After all, our economy is not growing the way it did two decades ago.  So, the only way to seemingly provide glorious returns to “activists” is to slash costs- whether or not that endangers the long-term health of the firm.

So, you see, it’s not just the “little guys (and gals)” who’ve lost faith in the American Dream. (I’ve discussed this many times over the years; my most recent mention is here.) It’s the big companies that are the bulwarks of our economic strength.  Unless and until we find a group of CEOs who will stick it to these leveraged buyout artists and activists, we are doomed.

But don’t hold your breath.  Because the snakes are very good at shining the apple they offer to these CEOs to take the forbidden bite.