Among the 30 Dow Jones Industrial Average (DJIA) components, shares of E.I. du Pont de Nemours and Co. (NYSE: DD) are down the most in 2016. The price of its stock has dropped 18.8% to $54.09, while the DJIA is off 8.3% to 15,988 for the same period.
Many experts on Wall Street believed the merger with Dow Chemical Co. (NYSE: DOW) would be good news for DuPont. But Dow’s shares have cratered as well. The “marriage of equals” was supposed to create “synergies” and save money. Apparently, investors do not believe that, even though the two companies said so:
Upon closing of the transaction, the combined company would be named DowDuPont and have a combined market capitalization of approximately $130 billion at announcement. Under the terms of the transaction, Dow shareholders will receive a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share. Dow and DuPont shareholders will each own approximately 50 percent of the combined company, on a fully diluted basis, excluding preferred shares.
The transaction is expected to deliver approximately $3 billion in cost synergies, with 100 percent of the run-rate cost synergies achieved within the first 24 months following the closing of the transaction. Additional upside of approximately $1 billion is expected from growth synergies.
Among things have undermined the value of the shares of the two companies, the first and easiest to identify is the collapse in commodity prices. Agriculture is DuPont’s largest business, and it represented $11.3 billion of the company’s $35 billion in sales in 2014.
The type of business DuPont is in has trumped the value of the merger. That shows itself most readily in its share price.
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