The $120 billion proposed tie-up between Dow Chemical Co. and DuPont Co., though it would turn the two biggest American chemical producers into one industry behemoth, should still be able to clear a U.S. antitrust review if the companies sell off a few pieces, according to lawyers and analysts.
The investigation, which would likely be conducted by the U.S. Federal Trade Commission, would focus on individual product lines where the two compete and where there are few other rivals to keep prices in check. The most significant overlaps are likely to be found in the companies’ agricultural businesses, analysts said.
"Yes, these are the two biggest chemical companies in the U.S. But you have to look at the more narrow markets where they actually compete to get a sense of the antitrust issues," said Tom Lang, an antitrust lawyer at Haynes and Boone LLP in Washington. "There are some that compete directly with one another but there are many many many that don’t."
The product overlaps aren’t extensive and the focus will probably be on seeds and crop chemicals, according to Jason Miner, an analyst at Bloomberg Intelligence. But even in those markets, the companies compete against large rivals like Syngenta AG, Monsanto Co. and Bayer AG, he said.
"It’s complex enough that it will take time but it’s much more complementary than competitive," Miner said. "It seems a lot more viable than you would think from the headline -- major U.S. chemical company buys major U.S. chemical company."
Dow and DuPont are said to be in late-stage merger talks under pressure from activist investors over a deal that would be the industry’s largest-ever merger and the latest mega-deal in a year of blockbuster tie-ups from pharmaceuticals and drug stores to beer.
A deal may be announced as soon as this week, according to people with knowledge of the matter who asked not to be identified because the information is private. After the merger, the company would break into three businesses -- agriculture, specialty chemicals and commodity chemicals -- because of regulatory and other issues, one of the people said. There’s no guarantee a deal will get done and talks may still fall apart, the people said.
The other area where there could be some overlap is performance materials and performance chemicals, according to Maria Lauren, a London-based antitrust consultant.
"In both the agricultural and chemical side they do have a number of competitors which will make it reasonable to assume that specific divestitures could be picked up,” said Lauren. “There will be a number of buyers able and willing to pick up divestitures.”
In the specialty chemicals business, Dow and DuPont share some customers, but they sell them different products, Sanford C Bernstein & Co. analysts Jonas Oxgaard, Evie Raikh and Jacob Saal wrote in a note published Wednesday.
In the agricultural business, the companies’ combined assets would create the industry’s No. 2 in seeds and No. 3 in crop protection, the Bernstein analysts said. They expect Dow’s corn-seed sales to be divested for antitrust reasons, potentially to Syngenta. DuPont’s Nutrition & Health and Industrial Biosciences units would probably stay within the new agriculture division, they added.
The FTC shares antitrust enforcement authority in the U.S. with the Justice Department. FTC investigators might consider whether Dow and DuPont’s plans to break up the combined company could reconfigure the different industries and change the competitive landscape, according to Allen Grunes, an antitrust lawyer with Konkurrenz Group in Washington.
“Suppliers, customers and companies wanting to enter the market area are all facing a different set of competitors, with different assets and different incentives,” Grunes said. “And the companies themselves that have combined and broken up are competing in a different way, and perhaps no longer competing on certain businesses.”