Mother Nature late last month stole some of the spotlight from a momentous event in the history of plastics and chemicals markets.
The much-anticipated merger of industry titans Dow Chemical Co. and DuPont Co. became official on Aug. 31. But the attention of the industry, and most of the world, was on the Texas coast, where Hurricane Harvey caused almost 50 deaths and knocked out a large chunk of the region's ability to make plastic resin and feedstocks.
The merger proceeded as planned, creating DowDuPont, a combination of two firms that had combined sales of $72 billion last year. The firm will be co-headquartered in Dow's longtime home of Midland, Mich., and at DuPont's base of Wilmington, Del., and will be led by CEO Ed Breen of DuPont and Chairman Andrew Liveris of Dow.
But items emblazoned with the new name might be in short supply since the fledgling firm plans to split into three separate companies within the next 18 months. The largest of those three will include plastic resins and other materials. It will retain the Dow name and be based in Midland.
The other two spinoff firms — one devoted to agriculture and the other to specialty products — both will be based in Wilmington.
The merger transaction is expected to generate cost synergies of approximately $3 billion and growth synergies of approximately $1 billion. Dow's plastics history dates back more than 70 years, while DuPont's goes back even further, beyond 90 years. Today, Dow remains a world leader in polyethylene, while DuPont is a top producer of nylon and other specialty plastics.
When the merger was first announced in December 2015, it sent shockwaves through the industry. Was this really happening? It was one thing for longtime players like Union Carbide (acquired by Dow) and GE Plastics (acquired by Sabic) to vanish in the last 20 years. But DuPont was nearly synonymous with the chemicals market through its many well-known products, including nylon.
"In 1802, E.I. du Pont de Nemours and Co. sprouted, like an acorn, close to the young oak of American life," Adrian Kinnane wrote in a DuPont company history published in 2002. The firm initially staked its claim as a supplier of explosives, including gunpowder, to U.S. manufacturers and to the young country's armed forces.
But financial struggles and a bruising battle with activist investor Nelson Peltz led to a proxy fight at DuPont's annual meeting in May 2016. The firm's board nominees won out, but ongoing strife led to the resignation of CEO Ellen Kullman in October. The Dow deal came two months later.
Dow itself dates to 1897, when, after a few false starts, Herbert Dow rounded up investors in Cleveland and Michigan to finance a bleach plant.
"All told, [stockholders] provided Herbert Dow with $83,333 in new capital," E.N. Brandt wrote in a Dow company history published in 1997. "It was more money than he had ever had before. His new company, the Dow Chemical Co., was under way."
Some market watchers have speculated that the formation of DowDuPont is a sign that it's increasingly difficult — and maybe even undesirable — for chemicals and plastics companies to be all things to all customers. Even with recent sell offs, Dow and DuPont each made a wide variety of products for an even wider range of markets. In an increasingly specialized world, this strategy might not produce the results it used to.
What does the future hold for DowDuPont? Its North American operations will be under pressure from the start because of the hurricane's impact on its products and supply chains.
But in the longer term, the focus on research and new product development that allowed both Dow and DuPont to survive well beyond most of their competitors should serve the new firm well.
Having the work ethic of Herbert Dow also would be a good thing.
According to the company history, Dow one day was walking through its machine shop in Midland and came across a machinist who was hard at work amid a floor that was covered in metal shavings.
Dow asked the machinist why he didn't clean up the mess, to which the machinist responded, "I'm busy making this cut. Clean it up yourself." So, Herbert Dow found a broom and shovel and swept up the shavings himself.
"A man who tries to run a job from the golf links," Dow later said, "is not as successful as a man who is in closer touch with his job."
Frank Esposito is a senior reporter for Plastics News. Follow him on Twitter @fesposito22.
