DuPont DD said yesterday that it will slash roughly 1,700 jobs in Delaware, its home state, in early 2016 as it moves forward with its planned mega-merger with Dow Chemical DOW.
This significant move is part of DuPont’s plans to cut 10% of its global workforce of around 63,000 as part of the 2016 cost savings and restructuring program that it announced on Dec 11. Delaware has been DuPont’s home for more than 213 years. The company has roughly 6,100 employees in the state.
The 2016 restructuring program, which builds on the company's previous operational redesign initiative, is expected to deliver cost reductions of $700 million. DuPont expects to take a pre-tax charge of around $780 million (including around $650 million of employee separation costs) related to these actions.
DuPont’s Chair and CEO Edward Breen, in a letter to the company's Delaware employees, said yesterday that the planned headcount reductions reflect the urgent need to restructure the company’s cost base and trim its corporate overhead costs to remain competitive.
Breen also noted that the company was legally required to file a notice with the Delaware State government by Dec 31, detailing the expected job cuts. The company will offer separation packages, career placement services and training allowances to the affected Delaware workers.
DuPont’s shares closed around 1.7% higher at $67.57 yesterday.
DuPont and Dow Chemical, earlier this month, agreed to combine their businesses in an all-stock deal to create a chemical titan dubbed “DowDuPont” with a combined market value of around $130 billion, before eventually breaking up into three independent companies. The deal has been unanimously cleared by the boards of both companies.
The proposed merger will see the union of two of the America’s oldest companies with more than three centuries of combined history. Apart from being the largest deal ever in the chemical space, it also ranks among the biggest mergers and acquisitions (M&A) deals announced this year.
Under the deal terms, shareholders of Dow and DuPont will each own about a half of DowDuPont, excluding preferred shares. Dow shareholders will get one share of DowDuPont for each Dow share, while shareholders of DuPont will receive 1.282 shares in the new company for each DuPont share they hold. Edward Breen will retain his title at the new company. Dow’s CEO Andrew N. Liveris will be the Executive Chairman of the combined company.
The planned merger, however, would be followed by a breakup of the integrated company into three independent, publicly traded companies through tax-free spin-offs. The combined company would split into pure-play agricultural, material science and specialty products businesses that will be leading players in their respective fields.
The breakup is expected to take place 18-24 months after the completion of the deal, which is expected in second-half 2016, subject to regulatory and shareholder clearance. DuPont said yesterday that the corporate headquarters for the combined specialty products business will remain in Wilmington, DE.
The proposed ‘merger of equals’ is expected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure.
The deal, however, would need regulatory clearances in several countries and is expected to face a tough antitrust scrutiny due to competitive concerns given its massive size and scale. Analysts expect that the merger could ignite more deals among other agricultural chemical companies including Monsanto MON and Syngenta SYT.
DuPont is reeling under the effects of falling farm commodity prices and weak agricultural market conditions. Its profits tumbled year over year in third-quarter 2015, hurt by bigger operating loss in its agriculture business and lower crop prices.
DuPont expects sales growth to be challenging in 2016 due to difficult conditions in agriculture & emerging markets and currency headwinds stemming from a stronger dollar. It sees currency impact of 25 cents per share for the year. DuPont plans to provide full-year 2016 outlook during its fourth-quarter 2015 earnings call.
DuPont is a Zacks Rank #4 (Sell).
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