Separately, Dow and DuPont were massive chemical conglomerates. When they merged in 2017, DowDuPont became the largest chemical conglomerate in the world.
The combined company had $86 billion in sales for 2018, exceeding the competition by a substantial amount. In comparison, Germany’s BASF had $74 billion in sales, and Taiwan’s Formosa Plastics Group had just $46 billion.
Bringing Dow and DuPont together was a complex endeavor, and some investors were still getting used to the changes. Then, just a few years later, the massive organization split into three separate entities: Dow, DuPont, and Corteva. Here’s what you need to know to make the most of investment opportunities presented by the three independent companies.
Understanding the Merger and Breakup of DowDuPont
As separate chemical conglomerates, Dow and DuPont were reasonably successful. Dow Chemical [NYSE: DOW] was founded in 1897 by Herbert Henry Dow, and its original business was limited to bleach and potassium bromide.
DuPont Chemical’s [NYSE: DD] history goes back even longer. Éleuthère Irénée du Pont started E.I. du Pont de Nemours & Company in 1802. The company originally produced black powder and explosives, though it eventually branched out to include other types of chemicals.
Over time, both Dow and DuPont explored other product types by expanding and acquiring a mix of chemical manufacturers – some complementary and some that significantly contrasted with current products . This resulted in sprawling entities with many moving parts – some of which were profitable and some less so.
Ed Breen, who was already known for his skill as a transformational leader, joined DuPont’s Board of Directors in February 2015. On November 9, 2015, he was named CEO. Breen came to the company with a bold strategy – to merge Dow and DuPont, streamline the combined company, and then separate it into three distinct businesses with clear-cut areas of focus.
The plan was risky, but it was executed with care and precision. Dow [NYSE: DOW] and DuPont [NYSE: DD] stopped trading as individual stocks on August 31, 2017, and they started trading as a combined company September 1, 2017, using the symbol DWDP.
In the months that followed, the organization restructured, realized synergies, and divested units that failed to meet the new business objectives.
By the beginning of 2019, it was clear that the three units were ready to launch as independent businesses.
Dow was the first to split off, with Corteva following a short time later. Today, Dow, DuPont, and Corteva trade separately on the New York Stock Exchange. The dust from the split hasn’t yet settled, so for investors, it is unclear whether the separate companies will realize the promised success.
What Does Dow Chemical Do?
The new Dow Chemical is focused exclusively on commodity chemicals. Examples include silicone, polyethylene, and paint additives.
These are produced at high volume and sold in bulk, with profits coming from the spread between raw material costs and bulk sale prices.
Because crude oil and natural gas are critical components of Dow’s products, oil prices play an outsized role in Dow’s pricing and profitability.
What Does DuPont Do?
DuPont’s product line is comprised of an entirely separate class of chemicals. Specifically, DuPont makes specialty chemicals like adhesives, enzymes, and advanced plastics that are used in automobiles, electronics, and other sensitive equipment.
Such chemicals are produced at much lower volume, and they command a higher margin.
The added value is derived from the skill and expertise required to manufacture such chemicals, as well as protected processes and methods that set DuPont apart from competitors.
What Does Corteva Do?
Finally, Corteva is in a third distinct area of the chemical production industry. This business focuses on agricultural products that include chemicals, seeds, and traits. Like specialty chemicals, many of Corteva’s products are patented, and because the chemicals are used in food production, they must go through an FDA approval process.
Agricultural chemicals and seeds are relatively straightforward, but Corteva’s true ability to differentiate itself is in traits. This is the process of breeding desirable genetic characteristics into seeds such as drought resistance and herbicide tolerance.
The idea of combining agricultural chemical and seed production into a single entity isn’t unique to Corteva. Similar examples include Bayer’s purchase of Monsanto and China National Chemical’s purchase of Syngenta.
Is It the Right Time to Buy Dow, DuPont, or Corteva?
Ultimately, the question for investors is which of the three companies – if any – have the strongest prospects.
Analysts have been hesitant to make any definitive statements so early in the establishment of the new companies, though some have suggested that Dow may be a good choice for value investors, while DuPont is more suited to those looking for growth.
Corteva has attractive financials, but analysts suggest caution. The agricultural industry is highly volatile, so Corteva may not be the right choice for those who prefer a bit more stability. In addition, Corteva faces risk from legislation designed to limit the spread of genetically modified seeds.
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