(Revised and updated) Dow Chemical Co., based in Midland, Mich., and DuPont Co., Wilmington, said Friday they will combine in a "tax-free merger" into one company, DowDuPont, then split the combination into three. They want to slice at least $3 billion in yearly expenses, shut offices and plants and lay off thousands, in hopes of driving up share prices and enriching investors. DuPont merger statement here.

DuPont also said Friday that, even before the merger, it will erase around 5,400 of its 54,000 global employees. CEO Edward Breen plans to cut $700 million from spending next year, and pay $650 million for layoff severance to thousands of workers who will lose their jobs, plus $130 million for plant shutdowns. The companies employ around 100,000 worldwide, almost 1/10th of whom work in the Philadelphia area (list at bottom). DuPont spending cuts statement here. Also, Dow will absorb Dow Corning; statement here.

In remarks to investors, the bosses said they'd relied on advice from corporate raiders Daniel Loeb of the Tri Point hedge fund group, which owns 2% of Dow, and Nelson Peltz of the Trian hedge fund group, which owns 3% of DuPont, in designing the split-up, which they hope to conclude by late 2017. 

The planned cuts include $300 million of the combined $3.6 billion a year the companies spend on research and development. Duplicate electronics factories are among the facilities likely to be closed, Breen said.

The move joins two 100+-year-old firms that grew rich building and acquiring chemical patents, developing processes and products they sold to armies, farms, factories, households and governments worldwide, employing hundreds of thousands of professionals and skilled workers, often creating toxic byproducts.

Dow boss Andrew N. Liveris, who told investors in a conference call today he's been trying "for more than a decade" to merge with DuPont, will be the combined firms' Executive Chairman. DuPont's new CEO Edward D. Breen, who will keep that title at the combined companies, cracked that he'd "coveted this deal for about two months," or since he got the top job at DuPont. But Breen also said he and other DuPont directors also "looked at every other variation that there could be around the world" in search of profitable buyers, sellers and partners.

Breen will oversee the two smaller of the three planned successor companies before hiring their CEOs; the largest group of companies will report to Liveris and keep the Dow name. The as-yet unnamed chief financial officer for the combined companies will report to Breen. Breen said Dow and DuPont "fit together like hand and glove."

The three successor firms:
- DuPont and Dow crop pesticides and genetically-modified seeds, with sales totalling $19 billion, will unite into an "Agriculture" company under Breen's oversight
- DuPont's Performance Materials group will be folded into Dow's plastics, construction and consumer businesses, creating a $51 billion "Material Science" company under Liveris' watch
- DuPont's nutrition and health, enzymes and biosciences, safety and protection, and electronics and coummunications groups will be joined to Dow's electronic materials business in a "Special Products" group under Breen.

While the Ag merger "makes some sense," bond analyst Carol Levenson wrote in a report to clients of Gimme Credit LLC, "the Material Science company is mostly just Dow's commodities businesses and the Specialty company is mostly just DuPont's specialty businesses."

The Specialty Products company "kind of seems like 'All Other,'" UBS analyst John Roberts noted in the investor conference call. Liveris said it was Breen's idea to put that group together, and insisted they weren't "leftovers." Breen said the group combines a string of "high R&D" businesses.

Breen promised to cut "duplication" but also to protect "the people inventing and making the product" as well as customer-facing salespeople. Other jobs are "fair game" for "attack," he added.

Analyst Jonas Oxgaard told clients of Sanford C. Bernstein & Co. that he's "disappointed that DuPont's best-performing Performance Materials segment" will be merged into Dow's lower-performing plastics group in the "Material Science" company. He urged the partners to "rethink" the way the companies will be divided.

The mergers and cuts are expected to translate to more job losses at DuPont's shrunken headquarters in suburban Wilmington. Sources at DuPont in Delaware tell me the Special Products business is the one most likely to remain based in Wilmington if it becomes a separate company.

Analysts also noted the combined companies will have to divide up multibillion-dollar pension, pollution, debt and tax liabilities. DuPont CFO Nicholas Fanandakis said he expects rising interest rates, and higher yields on bond investments, will help pay future pensions.

Liveris and Breen said they weren't too worried about U.S. Department of Justice antitrust regulators calling the merger uncompetitive; they expect to sell off any businesses that get in the way of approval.  

But U.S. Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, said in a statement that the Dow-DuPont deal "demands serious scrutiny." He called on federal regulators for "vigorous enforcement of the antitrust laws," and added that he'll  "be listening to Iowa farmers and consumers about any concerns they may have with this proposal."

Liveris said he plans to use Dow's 2009 purchase of Philadephia-based Rohm and Haas as a model.

While Dow shut some longtime Rohm and Haas plants and plans to pull the last of the headquarters staff out of  Rohm and Haas' former landmark Philadlephia headquarters next year, Liveris said Dow made sure to preseve the guts of the specialty chemical maker, its "application development and the sales engine and the innovation engine."

By contrast, raw materials and service contracts are "a target-rich environment" for cost-cutting, Liveris added.

Everyone wants to cut "duplicative corporate services" -- but if the authors of this merger are serious about following consolidation with creation, vanished costs will "reappear times three," according to bond analyst Levenson.

"Mergers and spinoffs do not come cheaply," she added. "Is this a brilliant idea or just a way to generate investment banking fees?" She noted that Tyco bondholders had sued Breen over what they considered his unfair division of corporate debt when he dismembered that former conglomerate in 2007.

Hedge-fund investors Loeb and Peltz had expressed impatience with the chemical giants' large management structures and the slow or hard-to-measure pace of scientific research and product development, and called for asset sales and cost cuts that will make it easier for them to extract cash.

While officials at the companies' pesticide competitors, including Sygenta, Monsanto and FMC, have described potential merger talks as near-universal through their industry as global demand has fallen over the past two years, Liveris told investors that DuPont and Dow directors have been in direct talks since at least last winter, when Breen's predecessor, Ellen Kullman, was in charge.

The companies insist theirs will be an unusual "merger of equals" rather than an acquisition. "This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders," said Liveris in a statement.

For now, DowDuPont plans to maintain both offices as "dual headquarters." The new board will include 8 directors from each company. They have not yet been named.

DuPont has bought and sold hundreds of companies since the 1920s. Other former DuPont divisions or affiliates that are now separate companies based in the Philadelphia area include Axalta, Endo and Incyte. Earlier this year, DuPont spun off money-losing chemical units into a new company, Chemours.

DuPont Co. facilities in the area employ around 7,000:
Research and Development (pesticides and seeds) – Stine-Haskell Lab, Newark, Del.
Research and Development  (many products) -- Experimental Station, Wilmington
Plastics and Polymers – Pencader and Tralee Park plants, Newark, Del.
Automotive, specialty chemicals, pesticides -- Chambers Works, Deepwater, NJ
Headquarters and offices – Chestnut Run, Wilmington
Contaminated, shuttered manufacturing site -- Repauno, N.J.
Hotel du Pont, DuPont Country Club, Brantwyn Estate -- Wilmington

Dow Chemical facilities in the area employ around 2,500:
Northeast Technology Center – Collegeville 
Paint/Engineering – Bristol
Paint Quality Institute – Spring House
Northeast Technology Center -- Collegeville
Insulation - Pennsauken
Electronics, computer chip materials – Newark, Del.
Philadelphia Office – scheduled to close in 2016

Former facilities (a sampling):
DuPont Philadelphia Works -- shut in 2009, now part of University of Pennsylvania
DuPont Edge Moor (Del.) works -- spun off with Chemours, scheduled to close (DuPont still maintains a waste facility nearby)
Dow (ex Rohm and Haas) division headquarters -- Independence Mall, Philadelphia (scheduled to close in 2016)
DuPont and Dow both have shuttered former chemical operations in Northeast Philadelphia