Dow-DuPont Settle Dispute - Analyst Blog

Dow AgroSciences, a subsidiary of Dow Chemical Co. (DOW), and E.I. Du Pont De Nemours & Co.'s (DD) Pioneer Hi-Bred finally settled their dispute over the marketing of certain corn seed products sold through Pioneer. As part of the resolution, Pioneer will continue to distribute products through its PROaccess unit but with modified packaging.

DuPont acquired Pioneer Hi-Bred International in 1999 for over $7.7 billion. Ever since, Pioneer has proven to be an exceptionally good deal, as DuPont is now one of the leading advanced seed trait companies in the world.

Earlier this week, DuPont also announced that it would acquire Denmark's Danisco for $5.8 billion in cash and assumption of $500 million of Danisco's net debt. The two companies are already partners in a joint venture focused on cellulosic ethanol.

The deal gives a better than 25% premium to Danisco shareholders and will likely produce more than 10% earnings dilution for DuPont in the first year.

Furthermore, the company's focus on the emerging markets, along with a strong performance in the Agriculture & Nutrition segment, is expected to generate top-line growth in the future.

On the other hand, Dow Chemical continues to deliver cost synergies from the Rohm & Haas (ROH) acquisition, which is expected to consolidate the higher margin and higher growth specialty businesses while reducing volatility in earnings and cash flow. Moreover, the slower recovery in the developed markets of the US and Europe, excess supply conditions in key commodities and higher raw material costs could restrain growth.

Currently, DuPont has a Zacks #3 Rank (Hold) for the short term and an Outperform recommendation for the long term. However, we maintain a Zacks #3 Rank (Hold) for Dow in the short term and a Neutral recommendation for the long term.

 
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