DuPont-Dow: 'Why merge merely to break up?'

Dealmakers are promoting a plan to combine Dow Chemical (with $50 billion in yearly sales) with DuPont Co. ($30 billion; the companies are each worth around $60 billion on the stock market.) Dow boss Andy Liveris would be "executive chairman," new DuPont boss Edward Breen would keep the CEO job. No word on how much of DuPont's shrunken Wilmington HQ or Dow's center in Midland, Mich. (or its remaining former Rohm and Haas assets in Philadelphia) would survive a deal.

Read the Journal story on Dow-DuPont here (you need a subscription). Bloomberg version here; see also this Journal commentary on the sad results of aging Western industrial mergers mocks DuPont's old slogan: "Better Living Through Layoffs"

"Why go to all the trouble and expense of merging them merely in order to break them up? This seems to be an idea born on Wall Street to garner investment banking fees," writes debt analyst Carol Levenson in a report to clients of Gimme Credit LLC. The proposed post-merger break-up into pesticide, chemical and plastics units "would probably be in line with what activist shareholders have been agitating for," she add: Dow's Liveris has been cutting jobs at the behest of Dan Loeb, whose Third Point owns 2%; DuPont's Breen faces pressure from Nelson Peltz's Trian, which owns 3%; both are supported by other small funds looking to cash out.

It's no secret that Breen, Liveris and other pesticide industry CEOs have been talking about joining pesticide businesses amid weak global industrial sales (see my column Nov. 16).

DuPont enjoys higher profitability than Dow, but a costly merger could wipe out the advantage, Levenson concludes: "DuPont, for all its management turmoil and activist pressure, is a stronger credit than Dow, but any potential lift for Dow bondholders could be wiped out when the company is split up." She's recommending against Dow and DuPont bonds.