Similar to several acquisitions, spin offs and partnerships that we have witnessed in the chemical space in the last two years, it is quite understandable that the discussion around a possible Dow-DuPont merger and the subsequent spin-off of separate business entities is happening right now. The need of the hour for chemical companies is to have focused businesses and not exactly to be a larger entity. Both companies have been insulating their specialty markets from exposure in commodities by offloading commodity assets as recently as this year.
Coming back to the merger, the cost advantages that can be achieved in the agro business will be significant for the combined entity. Moreover, it will also be beneficial to use the strong feedstock operations of Dow and the specialty focus of both companies in such a low oil price scenario. Having said that, the synergies that the entities can immediately tap across the specialty portfolios of the companies are not as much as expected. The combined agro entity will surely become a formidable competition to the likes of companies like Monsanto, but the business and product overlap across their specialty businesses are very few. For instance, electronic and display materials is an area where the companies can potentially experience cost benefits and increased market penetration, while other markets such as safety, where Dow is not active, will not see much change.
Similarly, at present both companies focus on areas such as polymers, elastomers, composites and photovoltaic materials, which can prove to be a game changer in those industries. As of now, Frost & Sullivan expects the merger will face regulatory hurdles across different regions as both companies have a huge global footprint. However, if the merger does go through, it is going to be a big challenge for the non-agro business entities to unlock synergistic value in the short term due to the mere size of the companies themselves and the number of varied industries they focus on.