Dow/DuPont to Merge. Then Split Up.

The Wall Street Journal is reporting that Dow Chemical (DOW) and DuPont (DD) are currently discussing a possible merger. This would be a very large deal. Both companies are worth about $60 billion. Combined, the companies have been around for 331 years. DuPont is also a member of the Dow Jones Industrial Average. In effect, Dow could join the Dow. Both stocks are up about 10% today.

The companies are talking about merging and then breaking up into three different companies. That’s becoming more common these days. Still, there’s no guarantee they’ll get anti-trust approval. The Feds are going after the Staples/Office Depot merger which hardly seems dangerous.

The economics aren’t hard to miss. Whenever a commodity falls in price, there’s greater pressure for industry consolidation. It was 17 years ago, almost to the day, when Exxon and Mobil got hitched. This was also the time when oil bottomed out near $10 per barrel. Eighteen months ago, oil was at $107 per barrel.

DuPont’s famous slogan was “Better Living Through Chemistry.” There’s something about that slogan I find so appealing. It’s hard to think of something that better reflects 20th century American optimism. The idea that science can and will make the world a better place. It’s sad that that slogan seems so hokey in our advanced and cynical times.

I’m also skeptical of mergers, especially big ones. The track isn’t promising. Too many companies enter into mergers defensively. The thinking is, “it may not be great, but if we don’t do this now, they’ll strike a deal with someone else soon.”

The other big news item today is that Yahoo (YHOO) said it will keep its stake in Alibaba (BABA) but spinoff its core Web business.

The new structure essentially maintains Yahoo’s strategy of separating its valuable Alibaba investment from the rest of the company, which will be focused on Yahoo’s Internet properties.

The new Yahoo will be two companies: One will have a 15 percent stake in Alibaba, and the other will have everything else, including search, email, the Tumblr social media service and various sites like Yahoo Finance.

There was an interesting episode that could one day lead to a finance class. Yahoo’s stock got spooked because of the tax implications of selling Alibaba. But Yahoo’s board didn’t think it would face any taxes. The board eventually gave into what the shareholders thought.

CEO Marissa Mayer’s original plan was to spinoff Ailibaba along with some other Yahoo businesses into a new company called Aabaco. That’s all gone now. The sad fact is that without Alibaba or Yahoo Japan, core Yahoo isn’t worth very much.

Posted by on December 9th, 2015 at 1:23 pm


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