lower energy costs , while their agrochemicals divisions have struggled to cope with weak demand for crop protection products .
For the past year , both companies have been hounded by activist hedge fund investors . DuPont fought a pitched battle with Nelson Peltz , which it appeared to have won . But in September DuPont ’ s Ellen Kullman , whom Peltz ’ s Trian Partners had heavily criticized , exited the company . Now DuPont looks to be doing a deal that was along the lines of what Peltz was thinking .
The problem was poor returns . Never mind that the global chemical and agricultural businesses of Dow and DuPont are being dragged down by a slow world economy , and a strong dollar . The market wasn ’ t prepared to wait .
Pioneer seed produced by DuPont
regulators ," they could obtain clearance subject to conditions , Zhang said .
The talks come as the global agricultural chemicals industry is in a state of upheaval . Michel Demaré , chairman of Syngenta of Switzerland , confirmed last month that there were “ extremely active ” talks among the leading companies in the sector .
Both companies have been under pressure from activist investors — Third Point in the case of Dow , and Trian at DuPont — to become leaner and more focused by cutting costs and spinning off non-core businesses . Trian owns 2.94 per cent of DuPont , with 25.8m shares valued at more than $ 1.7bn . Third Point owns 2.03 per cent of Dow , with 23.5m shares worth almost $ 1.2bn .
A merger of Dow and DuPont would seem to fly in the face of the activists ’ strategy . However , a three-way break-up of the merged group could allow the creation of more focused businesses , concentrating on areas such as speciality chemicals or petrochemicals . Their plastics and specialty chemical businesses have benefited from
Kullman had argued DuPont ’ s research and development budget was essential to the company ’ s future . Peltz said it was hard to see a current return on DuPont ’ s investment . DuPont has invested an average of $ 2.1 billion in its businesses over the past few years . Yet its cash flow this year is expected to drop by about $ 500 million from last year .
Dow has done better . This year Dow predicted it will invest $ 3.9 billion in capital expenditures , yet its cash flow from operations this year is on track to rise by just $ 400 million . After taxes that ’ s an ROE of just over 6.5 %.
Even that number wasn ’ t enough to get Dow out of the cross-hairs of activist investor Dan Loeb . Loeb ’ s Third Point , which had agreed to a truce with Dow a year ago after being granted two board seats , has been reescalating its battle with the chemical giant for the past month or so . Third Point wants the company to spin off its petrochemicals business . Like DuPont , Dow has argued that its size creates better research synergies . Loeb hasn ’ t bought that , saying the market would value the petrochemical business higher on its own .
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