Dow, DuPont Deal the First of Many?

January 2, 2016 02:00 AM
 
Dow, DuPont Deal the First of Many?

Combined seed and chemical company to grab more market share than any competitor

The proposed $130 billion merger of Dow Chemical and DuPont, announced in December, would create a seed and chemical company with $19 billion in revenue, making it larger than Monsanto Company, Syngenta, Bayer or BASF Crop Protection. It would capture more of the U.S. market for corn seeds (41%) and soybean seeds (38%) than any other competitor, according to Morgan Stanley.

That makes farmers, already wary of dwindling competition, a little nervous. 

As farmer groups, such as National Corn Growers Association and National Farmers Union, pledge to speak up for farmer interests, the impact of such a deal could be felt in several ways.

Here’s what Brett Wong, a senior research analyst for Piper Jaffray Companies expects in the months ahead:

  • More mergers and acquisitions, particularly for crop chemical and seed companies. That could include things such as Monsanto reviving its pursuit of Syngenta or new mergers among FMC, UPL or NuFarm, who license rather than develop active ingredients.
  • Changes to the Dow/DuPont ag portfolio as the merger moves through the regulatory process. Potential asset sales include Dow’s Mycogen seed business and some DuPont insecticides.
  • Slightly higher input prices. “Yes, there will be pricing pressure on farmers, but grain prices will still dictate input pricing,” says Wong, who believes aggressive price jumps would drive many to independent dealers and generic offerings.

In the long term, such consolidation could also lead to innovative new products, as proprietary seed companies develop traits that are integrated with their crop protection offerings.  

“R&D opportunity in developing traits is a key motivation,” Wong says of the wave of mergers and would-be deals. “Crop chemistry also touches more acres than seed does, potentially expanding a company’s reach.” 

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