EXCLUSIVE: Here's What The DowDuPont Merger Means

• The merger deal between E I Du Pont De Nemours And Co DD and Dow Chemical Co DOW will likely create arbitrage trading opportunities in the market.
• Kellner Capital believes that the deal will likely hold up to regulatory scrutiny.
• Any required divestitures could be opportunities for smaller chemical companies looking to expand market share.

Wall Street woke up to yet another big M&A headline on Friday morning, as chemical giants Dow and DuPont have agreed to join their combined $130 billion in market cap into a single entity before splitting the assets into three different companies. The new agriculture company would likely have a combined revenue of $19 billion, the material science company $51 billion and the specialty products company $13 billion.

Benzinga had the chance to speak with Chris Pultz, manager of the Kellner Investor Fund, about the impact of the proposed merger.

Related Link: Dow And DuPont Announce Merger, Intend To Spin Into Three Publicly Traded Companies

Arbitrage Opportunity

When Benzinga asked Pultz about arbitrage opportunities, a specialty of Kellner Capital, he said the spread for this deal will likely be relatively small.

"I wouldn't say tight, but maybe tighter than it [typically] would be for a deal this size just because it is going to be done as a merger of equals, so we'll have to see where it shakes out. It will probably be able to be played from both ways, either being long the Dow and short the DuPont or vice versa," he explained.

Regulatory Scrutiny

Although any deal this size faces intense regulatory scrutiny, Kellner believes that this deal has a high probability of gaining approval due to the subsequent split into three separate companies.

"I think it helps the fact that they are going to be breaking up into three companies after this, even though that's probably another year or two after the closing of the deal," Pultz told Benzinga.

"This isn't going to be anything like the level of scrutiny, I would think, like we're seeing with some of these other late-stage industry consolidation deals that we've been seeing over the last year."

See Also: Anheuser-Busch/SABMiller Deal Shows Market Still Hungry For M&A; Oil & Gas Could Be Next

Third-Party Opportunities

Pultz believes that the breakup of the combined company likely means that Dow and DuPont will not have to agree to as many divestitures as other recent mega-merger partners like Halliburton Company HAL and Baker Hughes Incorporated BHI, but there could end up being some high-quality chemical assets up for sale in the near future at appealing prices.

"I'm sure there's tons of smaller specialty chemical makers that are out there that are going to look at this and say 'Hey, we want to get bigger in this area, they're going to have a combination of market share, they're going to have to divest something, we should probably get in there and pitch for those assets.'"

Shares of Dow and DuPont are both trading down more than 4 percent in Friday trading.

Disclosure: The author owns shares of Halliburton.