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 A deal, which would face regulatory approval in several countries,
would allow the two U.S. companies to rejig their assets based on
their diverging fortunes. Their plastics and specialty chemical
businesses have benefited from lower energy costs, while their
agrochemicals divisions have struggled to cope with weak demand for
crop protection products.
Following what would be structured as a merger of equals, the
combined company could split into material sciences, specialty
products and agrochemicals, the people said, cautioning that the
plans have not been finalized.
Dow's Chief Executive Andrew Liveris and DuPont Chief Executive
Edward Breen would have the two top jobs in the combined company,
one of the people said. An agreement could be reached in the coming
days, that person added.
Dow and DuPont declined to comment.
The Wall Street Journal first reported on the merger talks earlier
on Tuesday.
The possible merger may see cost synergies to the tune of $3
billion, CNBC reported citing people familiar with the matter.
As of Tuesday's trading close, Dow had a market valuation of $58.97
billion, while DuPont was valued at $58.37 billion.
DuPont, under Breen, who took over as CEO last month, had already
been in talks with rivals, including Dow, about exploring options
about its agriculture business.
Dow had also been reviewing all options for its farm chemicals and
seeds unit, which has reported falling sales for nearly a year.
In August, the world's largest seed company, Monsanto, abandoned a
$45 billion bid for rival Syngenta as declining grain prices and
farm income led to the major players in the farm chemicals and seeds
business becoming the subject of consolidation talks.
However, even before the merger is announced, speculation is rife
that the potential combination, which could overtake Germany's BASF
in revenue, may come under intense scrutiny by antitrust regulators.
"A deal like this will definitely be subject to close antitrust
scrutiny by Chinese regulators - not just MOFCOM but many other
government actors will be involved in the process. That doesn't mean
the deal will necessarily be prohibited," said Angela Zhang, an
antitrust expert at King's College in London.
Zhang warns that the merger review process will be protracted.
However, if the companies "can offer remedies that satisfy the
Chinese regulators," they could obtain clearance subject to
conditions, Zhang said.
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TURNAROUND EXPERT
Breen took over after his predecessor and company veteran Ellen
Kullman resigned abruptly in October. Best known as a turnaround
expert, Breen was the CEO of Tyco between 2002 and 2012 and split
Tyco into six companies, a sprawling conglomerate beset by scandal
and strategic flipflops.
DuPont, which gets about 60 percent of its sales from outside North
America, has seen a strong dollar chip away 53 cents per share from
its earnings this year. The company has been facing sliding sales
for nearly two years.
Kullman had blamed much of the stock price drop on global markets
including a rising dollar but some investors had already grown
restless with her leadership, complaining that she was not fully
executing on the changes she initiated.
In the intervening period in May, when Kullman was fending off a
proxy battle from activist investor Nelson Peltz to get
representation on the board, the company's stock price fell over 25
percent, weakening her support among investors.
In analyst views, the appointment of Breen has been welcomed by
Peltz, who has been pushing for DuPont to separate its volatile
materials businesses from more stable businesses and save $2 billion
to $4 billion in annual costs.
A 213-year-old company, DuPont makes products and chemicals that go
into industries such as petrochemicals, pharmaceuticals, food and
construction.
(Reporting by Greg Roumeliotis in New York; Additional reporting by
Shubhankar Chakravorty and Ankush Sharma in Bengaluru; Editing by
Ken Wills, Stephen Coates and Gopakumar Warrier)
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