Along the way there will probably be plenty
of cost cutting and layoffs. It will also likely
mean a reduction in research spending for
both companies. That’s sure to produce
better short-term returns, especially for
DuPont.
But will it produce a company that has better
long-term returns than the two companies
would have on their own. Who knows?
Recent studies show that activist investors
tend to have mixed results when it comes to
long-term returns. But what we do know is
the market will no longer wait around to find
out.
DuPont has a new chief executive, Edward
Breen, who took over in November after his
predecessor unexpectedly retired 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 share 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.
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.
54
FARMERS GAZETTE
November 2015
A 213-year-old company, DuPont makes
products and chemicals that go into
industries such as petrochemicals,
pharmaceuticals, food and construction. It
also owns Pioneer Seed, the worlds’ largest
maize seed company. Pioneer owns Pannar of
South Africa.
Andrew Liveris, chief executive of Dow, has
come under pressure both from Third Point
and from Reuters reports about allegations
that he used his position to finance his
lifestyle. Dow described the reporting as
inaccurate.
In November last year, Third Point, led by
Dan Loeb, agreed a standstill deal with
Dow for 12 months, during which time
it could not criticise the company or buy
more shares. The agreement was part of a
wider deal under which Dow appointed four
new independent directors, including two
nominated by Third Point. That standstill
agreement will expire shortly, freeing Mr Loeb
to take action again.
One potential hurdle to a deal is the bloated
market share a merged company would
command in agricultural chemicals and seed.
Agriculture was DuPont’s largest division last
year, with sales of $11.3bn and earnings of
$2.35bn, while Dow’s equivalent business
had revenues of $7.29bn and earnings before
interest, tax, depreciation and amortisation
of $962m.
Nevertheless, there is a widespread
expectation in the industry that Dow and
DuPont — as well as other agricultural
chemicals businesses including Syngenta,
Monsanto of the US, and BASF and Bayer of
Germany — could be involved in merger and
acquisition activity. Syngenta’s Mr Demaré
said last month that executives expected
the sector would look “quite different” in six
months.
Dow and DuPont both said they did not
comment on rumours or speculation.