Wednesday, 09 December 2015

DuPont (DD) and Dow Chemical (DOW) may easily become the largest merger arrangement of the year. Rarely do you see a merger that might just actually make sense and be economically beneficial for the stockholders and the company. With a target price of $78/share for DuPont, shown in green below, the deal is worth approximately $120 billion. Dow is currently valued at 117.9%FV and acquiring DuPont which is carrying a value of 125.6%FV at a $76.70/share price. The target price makes it an overvalued offer at 132%FV but, with Dow at the current valuation the deal moves back into fair value with only a 12% premium. The companies are well versed in each others business as they have been competitors since 1897 which should have given them plenty of time to learn about vulnerabilities and competitive strengths. Both are well versed in logistics and production methodology along with research and development. There should be plenty of room to find savings and advancements. Whether they ultimately decide to remain combined or “focus” on markets by segmenting into three business lines should still offer shareholders a good future. Well done!