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Dow, DuPont Deal Under EU Antitrust Review

Wednesday, August 17, 2016

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European Union authorities are taking a look at the proposed merger between The Dow Chemical Company and DuPont, two major global chemical companies with diverse product portfolios, to determine if the move is in line with EU antitrust rules.

Dow and DuPont confirmed in a joint announcement Thursday (Aug. 11) that the European Commission has initiated a Phase II review for their proposed merger-of-equals transaction. 

Dupont, Dow CEOs, Breen and Liveris
Photos: Dow and DuPont

The European Commission, the antitrust authority of the European Union has opened an in-depth probe to assess whether the proposed merger of Dow and DuPont is in line with the EU Merger Regulation. Shown: DuPont CEO Edward Breen (left) and Dow CEO Andrew Liveris (right).

The primary area of concern of the EC is whether the deal may reduce competition in areas such as crop protection, seeds and certain petrochemicals, the Commission said in a separate statement.

The chemical companies emphasized that a thorough review of this nature was not unexpected and added that they are working closely with relevant regulators, including the EC.

The companies continue to maintain that the merger is pro-competitive and good for customers and consumers, they added.

Dow and DuPont each received the approval of their shareholders to proceed with the merger-of-equals process on July 20.

Seeking EU Regulatory Clearance

On June 22, DuPont and Dow began the formal process to obtain merger approval from the European Commission by submitting the required filing to obtain regulatory clearance in connection with the proposed merger of equals.

The Phase II review is a common next step in the review process for a transaction of this size and scope under EU Merger Regulation, the companies explained. Under this regulation, Phase II generally provides the EC with 90 working days to review the pending transaction.

DowDuPont plans

Within the next two years, the new combined company intends to spin off its Agriculture, Material Science and Specialty Products businesses into three independent, publicly traded companies, officials said.

“Dow and DuPont will continue to work constructively with the Commission to address their concerns and to obtain clearance for the merger, which we are confident will be achieved,” they said in the statement.

Areas of Concern

As reported previously, upon completion of the $130 billion deal, the companies plan to form a new entity, DowDuPont. Then, within 18 to 24 months of completing the transaction, they would split into three separate independent, publicly traded companies focused on material science, agriculture and specialty products.

The paints and coatings industry has focused on the side of the deal that will combine the two chemical and coatings titans into “powerful innovation and material science leaders.”

Dow chemist at work

Upon completion of the deal, the companies plan to form a new entity, DowDuPont. Then, within 18 to 24 months, they would split into three separate independent, publicly traded companies.

The EC’s concerns, however, lay on the agricultural side of the business, saying the proposed merger would create the world's largest integrated crop protection and seeds company.

“It would combine two competitors with leading herbicides and insecticides portfolios and with a strong track record of bringing innovative crop protection and seeds products to the market,” the EC wrote.

“It would also create a leading integrated producer of certain petrochemical products that are widely used in packaging and adhesive applications,” it added. “The transaction would take place in industries that are already globally concentrated.”

According to the EC, its initial market investigation identified these specific market concerns:

  • Crop protection, that is, herbicides, insecticides and fungicides. As both companies have strong portfolios in these areas, a merger could reduce competition in these markets and end up affecting price, quality, choice and innovation.
  • Seeds. Because both companies currently develop so-called “gene editing” technologies that could be used to materially accelerate the breeding of new seed varieties, the EC posed concerns that a merger would lead to fewer incentives to license these technologies to competitors or make the development of competing technologies more difficult.
  • Petrochemical products—polyolefins and monomers. Because both companies are strong suppliers of specialty polyolefins (thermoplastics derived from petrochemical products and widely used in packaging and adhesive applications), the EC is investigating the effect of eliminating one competitor and creating new vertical links in these concentrated markets.

Looking Ahead

Thorough antitrust inquiries are not uncommon in Brussels, home of the European Commission, for large merger proposals such as this one, and it does not indicate that a transaction will be blocked, The Wall Street Journal reported.

“If the EU confirms its concerns, the companies can sell assets or make other adjustments to assuage regulators,” the Journal noted.

A final decision from the EU is expected by Dec. 20.

Dow and DuPont continue to expect the transaction to close by year-end 2016, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals, they said.


Tagged categories: Asia Pacific; Business matters; Coatings Technology; Dow Chemical Company; DuPont; EMEA (Europe, Middle East and Africa); Industry News; Latin America; Mergers; North America

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