A new Number One: What the Dow-DuPont-Merger Means for Chemicals

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This deal falls well into a pattern of investor agitation pushing companies toward simpler and more focused portfolios. The reshuffle of Dow’s and DuPont’s non-agricultural operations would continue the split between specialty chemical and advanced material niches, as seen in the split of Bayer and its polymers company Covestro (former Bayer Material Services). Upstream integration would be retained for basic chemicals and polymers (materials) while bringing scale to the specialty business.

Further, the planned acquisition of the remaining 50% of Dow Corning—a major producer of silicones—will significantly strengthen the combined entities’ electronic materials and consumer care portfolios. Likewise, DuPont’s portfolio complements Dow’s with regard to food and nutrition and personal care product ingredients: DuPont (Danisco) is a major player in nutrition and health and a small player in the personal care products industry.

Dow To Remain a Powerful Chemicals Player

While Dow retains the upstream integration with expanded capabilities to bring a full portfolio of advanced materials, increasingly Basics (along with integration to commodity plastics) will likely be commanded by integrated oil companies, state-owned enterprises, emerging players in Asia and the Middle East, and a few remaining regional players in the United States and Europe. The last group would include a DowDuPont combination with an extended advanced material portfolio, Lyondell Basell, Ineos, and Westlake Chemical, notwithstanding the presence of other MNC producers such as Exxon Mobil, Shell or Chevron Phillips Chemical.

The rest of industry is focusing on targeted and more specialized niches spread across more than 30 segments. The emphasis here is on innovation, market knowledge and close customer relationships. Horizontal diversification is now seen as a distraction for some operators, as their business focus intensifies and broad-based ambitions are reduced.

While not true for agriculture, research and development (R&D) emphasis for chemicals narrows on developing applications with new materials penetration and extending product lines rather than core invention and developing new chemistry. These strategies will likely be tested in time as emerging players in Asia, including state-owned enterprises and national champions, continue to expand research capabilities and surely won’t limit themselves to basic chemical production over the long haul.

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