DuPont Reveals $700 Million Global Cost Savings Plan Following Dow Merger Deal

14 Dec 2015 --- DuPont and Dow are taking separate steps to restructure their respective businesses in the move towards their $130 billion mega chemical merger, which was announced last Friday. The merger announcement was followed by news that DuPont was aiming to take $700m of costs out of the business, partly by shrinking its 63,000-strong workforce by 10 percent.

Dow, meanwhile, which employs about 53,000 staff, said it was taking full ownership of Dow Corning, currently a 50-50 joint venture between Dow and Corning. The move is expected to generate more than $1bn in additional profit and will help Dow expand the range of products it offers in building and construction, consumer care, and automotive markets.

The transaction structure enables Dow to maintain a net debt-to-equity ratio consistent with third quarter 2015 levels (prior to the closing of the sale of Dow’s U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics, and Global Epoxy business units to Olin Corporation), in line with the Company’s focus of retaining an investment grade credit rating. The transaction is expected to close in the first half of 2016. Dow Corning’s corporate headquarters will remain in Auburn, Michigan.

"This transaction is another milestone aligned to Dow’s strategic agenda to provide clarity on our joint ventures and demonstrates our ongoing and relentless focus on creating shareholder value,” said Andrew N. Liveris, Dow’s chairman and chief executive officer. “Today represents the transition of a very successful 72-year partnership between Dow and Corning and our strong relationship with Corning will continue through Hemlock Semiconductor. Dow is the natural owner of Dow Corning. Fully aligned to our portfolio strategy, the addition of a silicones position will expand our product offerings across multiple businesses while driving innovative solutions that will enable us to go deeper into key end markets by leveraging Dow’s existing, strong science and engineering competencies across new chemistries."

DuPont’s 2016 cost reductions include a range of structural actions across all businesses and staff functions globally to operate more efficiently by further consolidating businesses and aligning staff functions more closely with the businesses. The new plan builds on the company's previous operational redesign initiative.

The plan further simplifies the company's structure into fewer, larger businesses with integrated functions, leading to sustainable cost reductions, faster decision making and closer connections to end markets. The company will begin implementation of these changes immediately.

As a result of these actions, the company expects to record a pre-tax charge to earnings of approximately $780 million, consisting of approximately $650 million of employee separation costs and about $130 million of asset-related charges and contract terminations. Approximately 10 percent of DuPont's global workforce will be impacted.

DuPont also highlighted 2016 macroeconomic expectations. Given global economic conditions in agriculture and emerging markets, the company expects sales growth in 2016 to be challenging. Currency headwinds are expected to be about $0.25 per share, due to the continued strengthening of the U.S. dollar primarily against the Brazilian Real. The company also expects $0.05 to $0.10 per share of pressure from a higher base tax rate, reflecting expectations of the geographic mix of earnings and cost savings that will be recognized primarily in the United States. The company plans to provide full-year 2016 guidance during its fourth-quarter 2015 earnings announcement scheduled for Jan. 27, 2016.

The merger deal to create DowDupont will face intense regulatory scrutiny, analysts said, especially over combining their agricultural businesses, which sell seeds and crop protection chemicals, including insecticides and pesticides. Executives from both companies said the agrichemicals businesses have little overlap and any asset sales would likely be minor, however.

Following the merger, the parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-free spin-offs. This would occur as soon as feasible, which is expected to be 18-24 months following the closing of the merger, subject to regulatory and board approval. The companies will include a leading global pure-play Agriculture company; a leading global pure-play Material Science company; and a leading technology and innovation-driven Specialty Products company.

Catherine Andriadis, Global Public Affairs Leader at DuPont Nutrition & Health confirmed to FoodIngredientsFirst that this business, which includes the former Danisco and Solae portfolios, will be part of the Specialty Products Company. However she noted that: “it’s premature to say anything further at this point.”

By Robin Wyers

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