Spinoffs to stay in Delaware after Dow-DuPont merger

• DuPont and Dow are undergoing a merger, creating three spinoff units.
• Officials Thursday announced that Delaware will be the corporate home of two of the entities.
• The third unit will be based in Midland, Michigan, the headquarters of Dow.

The state and New Castle County offered tax relief and pledged $17 million to keep DuPont strong in Delaware, and it paid off on Friday.

The state beat out Iowa and Indianapolis to land the corporate headquarters for what will be the largest agriculture company in the nation, a spinoff that will be created after the merger of DuPont and Dow Chemical later this year.

The First State will become home to two of three spinoff companies that will be created from the $130 billion merger.

A yet-unnamed specialty products company, which includes DuPont's nutrition and health unit, will also be headquartered in Delaware. The third spinoff, a material sciences company, will be based in Dow's hometown of Midland, Michigan.

"One of the key things that is nice for us is that we've got this great talent here," DuPont Chief Executive Officer Ed Breen told The News Journal Friday. "We've been pleased with all of the hard work by the people at the corporate headquarters."

Combined, the two spinoffs are expected to generate more revenue than the existing DuPont, according to documents filed with the Securities and Exchange Commission. Agriculture will have about $20 billion in revenue and specialty products is expected to produce $13 billion in revenue. DuPont generated $25 billion in revenue in 2014.

The new agriculture company will surpass St. Louis-based Monsanto Co.

DuPont merger: A 'sad day' for Delaware

Did the Dow-DuPont merger have to happen?

It is not known how many workers will be based in Delaware for either the agriculture or the specialty products businesses. By winning the agriculture headquarters location contest, Delaware staved off more job cuts beyond the 1,700 already announced.

"Had we lost these jobs, it would have been really troublesome," Gov. Jack Markell said.

To secure the agriculture business headquarters, Delaware committed to strategic fund grants worth $9.6 million over five years.That includes up to $6 million in matching funds to reimburse the new company for 3 percent of capital expenditures, such as updates to its facilities, up to $200 million.

The state has pledged another $3.6 million to support the creation of 400 new jobs. The offer is awaiting approval from the state's Council of Development Finance, according to Jonathon Dworkin, a spokesman for the governor.

The governor is also working with the General Assembly to pass two reforms to Delaware's tax code directly related to supporting DuPont's investment in research and development.

One reform will amended Delaware's existing research and development tax credits to remove a $5 million cap on the credit and make it refundable so companies can get the full value of the credit even if they owe less than that amount in corporate income tax. A second tweak would modernize Delaware's New Economy Jobs Tax Credit, a tax credit targeted to attract corporate headquarters jobs. The credit provides a qualifying company with a tax credit that is a percentage of the amount the company remits to the state as personal income tax withholding. An employer's percentage can vary depending how many jobs they create.

Both the agricultural and specialty products spinoffs would qualify for the second credit under the legislation.

The Delaware Competes Act was also seen as a factor in keeping the spinoffs in Delaware.  Passed earlier this year by the General Assembly, it changed how companies based in Delaware are taxed. Previously, the state calculated a company’s corporate income taxes based on a formula that factored in the proportion of employees, property and sales in the state versus the rest of the world. The new law changes it so that only sales are considered.

The overhaul comes with a price tag. It is expected to cost the state $8.2 million for the next fiscal year and $48.7 million over the next three years.

New Castle County plans to chip in another $7.5 million to keep the two companies based there. Under the proposal, the county will make $1.5 million annual payments for five years to DuPont.

​Iowa had offered the company $16 million in incentives, including a $2 million forgivable loan and up to $14 million in research tax credits. It is not known what Indiana offered.

"Iowa and Indiana are both great states and I'm really pleased in light of the competition," Markell said. "It was an all hands on deck effort."

Breen declined to discuss specifics about the state's incentive package, but he described his meetings with Markell and the state's congressional delegation as "great dialogue."

Delaware has been on edge since DuPont announced it would cut roughly 28 percent of its state workforce ahead of the Dow merger. The downsizing is said to be part of DuPont's worldwide plan to trim costs, and is not related to the merger.

Former DuPont CEO Edgar Woolard said retaining two of the three spinoffs could help offset some of those job losses, and even grow employment in the state.

"It won't be immediate, but in the next three to five years," Woolard said of the possibility that the two spinoffs could expand their workforces.

Robert Perkins, executive director of the Delaware Business Roundtable, and a former aide to Republican Govs. Pete du Pont and Mike Castle, said Friday's announcement is an important morale builder in the wake of DuPont's downsizing.

"Businesses both inside Delaware and outside the state look at the signals the state provides to determine if Delaware is a good place to grow a business and add jobs," he said. "This is a very strong message that Delaware is business friendly."

Under the agriculture company's structure, the office of the CEO and key corporate support functions will be in Delaware. Sites in Johnston, Iowa, and Indianapolis — two places that competed to be the agriculture company's headquarters — will serve as global centers focused on business lines, support functions, research, sales and marketing.

The agriculture business will operate out of DuPont's current Chestnut Run headquarters, Breen said.

Breen's role after the merger is unclear. Once the merger is completed, management for the three spinoffs will be chosen by the advisory boards for Dow and DuPont.

DuPont's major research center, the Experimental Station in Alapocas, will remain a key research and development hub for the three independent companies created after the merger, Breen said.

The Experimental Station will not only support research for the three independent companies, but focus on other companies that work with DuPont, such as Chemours. Breen said DuPont is in talks with Delaware's state and federal representatives to find opportunities for start-ups and high-tech businesses to use some of the excess space at the facility.

Markell said keeping jobs at the Experimental Station was crucial for Delaware.

DuPont's other major research hub, the Stine Haskell Research Center in Newark, will also remain. The company is said to be reviewing projects produced at the site to determine if they will fit into its future business plans. DuPont's seed unit, Pioneer, had research operations at Stine Haskell. Although Pioneer will be part of the new agriculture company, its Delaware research positions are in the process of being transferred to Iowa.

Construction on a $35 million, 134,000-square-foot soybean research center at the facility, slated for completion later this year, will remain on hold as a result of Pioneer exiting the state.

$17M deal: No DuPont ag HQ, but no jobs lost either

Markell called Friday's announcement, "very positive," saying it is good news for the state and could attract science and innovation companies. Such research and development jobs are desired by states because they pay high wages to fuel the tax base.

"We have a great opportunity to turn this into something exciting, innovative and entrepreneurial," he said. "That is not to say the loss of 1,700 jobs doesn't hurt, but we are going to do everything we can to turn this into something more positive.

Yale business management professor Jeffrey Sonnenfeld said DuPont's continued presence in the state will mean the retention and inclusion of science and engineering professionals in Delaware. He said drawing in a fresh talent pool fights back against an all too-common problem in U.S. cities – brain drain.

“Wilmington and Delaware have a fantastic opportunity to attract a creative class. This is a huge sign of confidence. It’s quite exciting,” Sonnenfeld said. “The area is a geographically fantastic magnet for the world’s best, most attractive talent to live.”

Breen said the agriculture company will incorporate DuPont in its name

"DuPont will be prominently mentioned in the new name going forward," he said. "It is nice for the employees that work here and it keeps continuity here. Our 213-year history is going to continue."

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.