Those of us who wonder about the structure of DowDuPont post-merger are not alone.
Investment analyst Bernstein, which has been rather bullish on the deal, now questions the composition of two of three companies that would be spun off after the merger of the chemical behemoths.
Nearly all agree that combining the agricultural units of the two companies makes sense.
But the composition of the remaining two companies is not viewed as a plus by Bernstein.
The publicly traded entities would focus on material science, and specialty products, with the latter company based in Delaware.
(We’ll leave the issue of the wisdom of the job and research cuts under new DuPont CEO Ed Breen out of the discussion for now. Breen still has some ‘splaing to do with Wall Street on whether embedding scientists in business units will work any better).
Bernstein suggests the three companies instead focus on agriculture, commodity chemicals, and specialty chemicals.
That makes sense to those of us without the financial engineering expertise (or the cocktail napkins) that produced the current Dow DuPont plan.
On the minus side, many of commodity and specialty chemicals businesses might have little appeal to investors, leading to pressure to immediately sell off the laggards.
Making their return would be activist investors like Nelson Peltz, who couldn’t, be happy with the current price of DuPont shares.
The top guns at Dow and DuPont answered the above issue by sprinkling in some sexier businesses into the mix in an effort to have the street buy into their plans.
Perhaps, there is a third way – sell off businesses with poorer returns and keep the entities that are performing well. That was DuPont’s approach to the merger and the abrupt departure of CEO Ellen Kullman.
Kullman had done some of that heavy lifting with the shedding of Chemours and the slower-growing coatings business (now Axalta).
She also put a nice business into the DuPont portfolio with the addition of the Danisco food additives company.
The shed the losers approach would bruise egos among the Dow crowd and lead to the selloff of much of that company.
Evidence of the disparity between Dow and DuPont can be seen in the merger itself.
Even though Dow is somewhat bigger than DuPont, the merger is a 50-50 transaction, a reflection of the higher value of DuPont businesses.
The lower valuation for Dow has some shareholders unhappy and perhaps led to the decision by its long-time CEO Anderw Liveris to depart the scene next year.
Under the keep it simple approach, new DuPont CEO and the next DowDuPont CEO Edward Breen would cherry pick Dow’s best businesses (perhaps the former DowCorning joint venture and Delaware-based former Rodel polishing technology business), while tightening accountability at the new company.
That would answer a long-running concern about the lack of accountability within the DuPont management structure.
It would also allow Breen to stick around as CEO, insist on that accountability and show he has the chops to manage a company long term.
With a big payday from his departure from a restructured Tyco, the day to grind might not appeal to Breen anymore.
Under the above clean slate plan, putting the remaining businesses under the DuPont umbrella would make sense. Sorry about that, Midland, Michigan.
