The just-announced “merger of equals” between Dow and DuPont will give farmers less choice, writes Chuck Benbrook

1. Time for a free-Pioneer movement?
2. New Dow-DuPont would give farmers "diversity of choice", CEO says

1. Time for a free-Pioneer movement?

Chuck Benbrook
Des Moines Register, 11 Dec 2015

First Monsanto tried to buy Syngenta, only to be turned down. Then news circulated that the agricultural pesticide and seed divisions of Dow and DuPont were either for sale or in search of a new partner. The other two big seed-biotech-pesticide industry players — BASF and Bayer — also were actively exploring merger and/or acquisition opportunities.

The ag-business news reported frequently that “everybody is talking to everybody” in search of strong new partners, once the music stops.

Seasoned observers predicted that once one deal within the seed-pesticide industry happened, a series would follow in short order, and that sooner rather than later, there would be three or four global companies controlling most of the worldwide seed and pesticide industry.

And now it has begun. The just-announced “merger of equals” between Dow and DuPont is stunning news on many levels, but one should be of special interest to Iowa farmers and citizens.

While details are vague, the merged company will be broken into three parts: chemicals, agriculture (seeds and pesticides), and everything else (plastics, fabrics, polymers, etc).

The agricultural company that emerges will include the Dow AgroSciences pesticide product line (mostly herbicides and insecticides,) and their seed and biotech assets. DuPont’s contribution will include the Iowa-bred and based seed company Pioneer, as well as DuPont’s portfolio of pesticides (important fungicides, several herbicides, and a handful of insecticides).

If this deal unfolds as planned, Iowa farmers can look forward to even less choice when it comes time to order corn and soybean seed, higher seed prices, and a doubling-down on GMO technology that is working less and less well.

The near-term financial performance of the new company will be determined by how fast the next generation of corn and soybean seeds can be brought to market, seeds that are genetically engineered to resist multiple herbicides. The farm-sector financial squeeze will tighten, as another chunk of net farm income is passed on to the technology developers and input suppliers. There will be, after all, new profit targets and lots of new debt that needs servicing.

For Iowa’s environment and citizens, the decade long, steady increases will continue in the number and volume of chemicals and insect toxins needed to bring a crop to harvest. Ongoing public and private efforts to lighten row-crop agriculture’s environmental and public health footprint will struggle to slow the inevitable decline in biodiversity, and the health of Iowa’s soils and water resources will face new risks.

Imagine instead another scenario that could emerge as a way to resolve anti-trust concerns. Suppose some insightful and cagey investors (e.g. Warren and Howard Buffet), step forward and make a play to extract Pioneer from this merger, and restore it as a free-standing company.

Twenty years ago, the Pioneer seed company was the most respected major agribusiness company in America. Their commitment to farmers was rock solid, and included a pledge to assure farmers captured $3.00 in value, through higher yields, for every extra dollar spent on their corn hybrids. This was a corporate farmer-sustainability pledge that meant something, and which the company took pride in delivering on, year in and year out.

Pioneer was a welcomed and respected voice in the halls of Congress and at the state level when critical agricultural policy issues were in play. They believed in and supported agricultural research and education, with an emphasis on the needs of farmers and the public good.

There is a hunger across farm country for new hope, and help in dealing with a long list of problems and challenges. Not the government, the universities, nor the private sector are pursuing meaningful solutions. Maybe its time for a free-Pioneer movement, in the hope that an independent Pioneer can again demonstrate that serving the needs of farmers, and society as a whole, is good for business, for Iowa’s farmers, and maybe even the planet.

CHUCK BENBROOK is an agricultural consultant and former research professor at Washington State University. Contact: This email address is being protected from spambots. You need JavaScript enabled to view it.

2. New Dow-DuPont would give farmers "diversity of choice",CEO says

Donnelle Eller
Des Moines Register, December 11, 2015

DuPont and Dow's gigantic $130 billion merger, which will spin off three independent companies, is expected to face intense regulatory scrutiny and will likely result in thousands of jobs lost as the chemical giants slash at least $3 billion in costs, experts said Friday.

But, in the end, the merger could leave the new companies better able to compete and thrive, company executives and analysts said.

DuPont, the Delaware parent of Johnston-based seed giant Pioneer, kicked off the cost cutting Friday, saying it plans a $700 million restructuring next year that will result in the loss of about 5,400 of its 54,000 worldwide workforce.

It’s unclear how many of those jobs would come from central Iowa, home to most of Pioneer's 3,400 jobs.

“When anything like this occurs, you’re going to get layoffs, you’re going to get workforces pared down, that’s automatic,” said Dave Swenson, an Iowa State University economist.

On Friday, DuPont and Michigan-based Dow called the all-stock deal a "merger of equals". The combined company would be called DowDuPont.

“This transaction represents a tectonic shift in an industry that has been evolving over the last many years,” Dow CEO Andrew Liveris said during a call with analysts Friday.

DowDuPont plans to spin off three publicly traded companies within two years of the merger closing.

A new ag company would be created by combining Pioneer, the nation's second-largest seed company, with Dow's seed and crop protection businesses. The new company would be worth $19 billion, based on the units' combined 2014 revenue.

Dow and DuPont also would create a material science company that would have revenues of $51 billion, based on in 2014 results, and a new specialty products company, with combined revenues of $13 billion.

The new ag company would be larger than Monsanto Co., the world’s largest seed business, based on revenue, and in a stronger place to compete, said Matt Arnold, an analyst at Edward Jones in St. Louis.

“Dow AgroSciences and Pioneer, when you combine them, they are a formidable ag player in the seed and chemical side of the equation,” Arnold said. “They’re heavyweight.”

Arnold sees little overlap between DuPont and Dow. Chad Hart, an Iowa State University agricultural economist, agrees.

"The merger puts together a company that is strong on the seed side with Pioneer and strong on the chemical side with Dow," Hart said. "Fertilizer might be the only thing that they're not covering when you look across the products they would offer."

DuPont CEO Edward Breen said a new Dow-DuPont ag company "gives the end consumer, our farmer, a lot of product choice, a diversity of choice".

But state, federal, and farm leaders called for close inspection of the mega deal.

U.S Sen. Chuck Grassley, a Republican, said the proposed merger "demands serious scrutiny". And the Iowa attorney general's office said it has concerns about the possibly increased ag concentration.

"We intend to learn more about the proposed merger and its potential impact on agriculture in Iowa," the state agency said.

Iowa Agriculture Secretary Bill Northey said that the farm downturn creates economic challenges for ag companies and that it's "critically important to maintain competitiveness."

DuPont cited the farm downturn in its plan to cut costs next year. U.S. farm income is expected to plunge 36 percent, to $58.3 billion, in 2015, its lowest level in nine years, because of low prices for corn and soybeans and high costs for seed, fertilizer and other inputs.

“If the merger does move forward, it is important that the efficiencies that occur are reflected in savings to producers,” Northey said.

Neil Hamilton, a professor of agricultural law at Drake University, said he sees few antitrust concerns with a combined ag company.

That's a lot different than when Monsanto Co., the world's largest seed company, pushed to buy Syngenta AG this summer, a combination that would have controlled about 45 percent of the seed market, more than twice as much market as Pioneer. That $45 billion bid failed in August.

"This isn't two big seed companies combining," Hamilton said.

Breen, the DuPont CEO, said about $1.3 billion of the $3 billion in expected cost savings would come from combining agricultural operations. Breen said the merger team was careful not to cut too much from research and development.

"One of the key benefits here is that these are science- and technology-driven, innovative companies," Breen said in a conference call with analysts. "What we don't want to do is affect future growth of these businesses.

"We took out duplication, but nothing that would help with growth. I'm very careful about not impacting the person selling the product or the person making the product. Everything else in the middle is fair game."

Liveris, the Dow CEO, would become executive chairman of the newly formed DowDuPont board, and Breen would become CEO of the new DowDuPont.

Breen will lead an advisory committee that lays the groundwork for the agriculture and specialty products company separations; Liveris will lead the material science committee.

Dow shareholders would receive one share of DowDuPont for each Dow share, the companies said. DuPont shareholders would receive 1.282 shares in DowDuPont for each DuPont share.

Dow and DuPont shareholders will each own about 50 percent of the combined company.

The merger is expected to close in the second half of 2016. It would need regulatory and Dow and DuPont shareholder approval.

Separation of three DowDuPont companies would be expected to occur 18 to 24 months following the closing of the merger.

Mega merger:

DuPont and Dow Chemical plan to merge as equals in an all-stock deal valued at $130 billion.

Within two years after merging, the company plans to spin off three independent, publicly traded companies within two years, with combined Dow-DuPont ag, material science and specialty products operations.

After the businesses are spun off, the combined DowDuPont would no longer exist, although the well-known brand names are likely to be used in the new companies in some way, said Matt Arnold, an analyst at Edward Jones.

Dow Chemical Co.

Headquarters: Midland, Mich.

About: Founded in 1897 by Canadian born chemist Herbert Henry Dow, the plastics, chemical and agricultural company makes 6,000 products at 201 manufacturing sites in 35 countries. Many products are used as raw materials used in other products, such as advanced polymers and resins used in golf ball coatings.

Revenue: $58.2 billion in 2014.
Employment: 53,000 people worldwide.

DuPont Co.

Headquarters: Wilmington, Del.

About: Founded in 1802 by E.I. DuPont, the chemical, agriculture and nutrition, and advanced materials company has operations in 90 countries around the world. Its products include Tyvek used to wrap and insulate homes and Kevlar fiber used in body armor.

Revenue: $34.7 billion
Employment: 54,000 worldwide.