Dow, DuPont hire consultant to review post-merger spinoffs

Dow and DuPont have tapped McKinsey & Co., a business management and consulting firm, to review its post-merger spinoff proposal.

Within 18 to 24 months after Dow and DuPont complete their pending $147 billion merger, the companies intend to split the consolidated company, DowDuPont, into three separate, publicly-traded businesses. 

Two of those new companies – with focuses on agriculture and specialty products – will be based in Delaware.  A third spinoff, a material sciences company, will be based in Dow's hometown of Midland, Michigan. 

That plan has come under fire from investor groups in recent weeks. 

Activist investor Daniel Loeb, manager of New York-based hedge fund Third Point, has challenged the idea of three spinoffs. Loeb contends splitting DowDuPont into six new companies would create more value for shareholders. He has demanded DowDuPont split the specialty products business into four publicly traded companies.

The deal could leave DuPont with just the agriculture spinoff or it could give the First State five new companies instead of just two. 

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Glenview Capital, a separate New York hedge fund, also demanded changes to the spinoff plan in a Tuesday letter to its investors, according to a Wall Street Journal report.

DuPont and Dow said last month they would review the spinoff proposal. At that time, a DuPont spokesman said the review would not change the plan to keep two of the new companies in Delaware. 

To complete that review, the companies have tapped Philadelphia-based McKinsey to assist their assessment of the spinoffs in capturing additional shareholder value. The lead director of each company will work with McKinsey to oversee the process. DowDuPont's board will review the results shortly after the merger closes.

"As a collective board we are committed to delivering maximum, long-term shareholder value by ensuring that each of the intended companies will have focus, an appropriate capital structure, a distinct and compelling investment thesis, sale advantages and focused investments in innovation to better deliver superior solutions and choices for customers," said Jeff Fettig, Dow's Lead Director.

Alexander "Sandy" Cutler, DuPont's Lead Director, said the review will look at the spinoff's portfolio mix to ensure DowDuPont capitalizes all value-enhancing opportunities.

"If the results of our review demonstrates that there is a net greater long-term value creation to be realized through a change in the portfolio, it will be pursued," Cutler said. 

Matt Arnold, an analyst with Edward Jones in St. Louis, said the review is a sign that the companies are listening to the investors. 

"Dow and DuPont are clearly listening," Arnold said. "They signaled that when they said they will evaluate the structure of the spinoffs. It's definitely another thing investors are going to be watching." 

The addition of McKinsey came just hours after Canada approved the proposed merger between the companies. Canada was the last major jurisdiction to greenlight the deal. The U.S., Brazil, China, India, Mexico and the European Union had all given their blessing to the merger earlier this year. 

Dow and DuPont reaffirmed their expectation to close the merger in August, with the intended spinoffs to occur within 18 months of closing.

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