DowDuPont Split Details Finalized

DowDuPont still intends to split into agriculture, specialty product, and material science companies. The specialty product company, with 2016 pro forma revenue of around $20 billion, will comprise four divisions of similar revenue: electronic and imaging, transportation and advanced polymers, safety and construction, and nutrition and biosciences. Given that these four segments are distinct businesses that will be operated separately, we would not be surprised if the specialty product company split into four separate companies at some point. We note that each of the four businesses will generate similar revenue as previous divestitures such as Axalta and Chemours.

We continue to expect $1.2 billion in annual cost-saving synergies versus management’s $3 billion target. We expect DowDuPont to achieve the majority of its cost-saving measures pertaining to cost of goods sold, selling, general, and administrative expense, and research and development. On their own, these savings would produce around $1.8 billion of annual cost synergies. However, we continue to forecast $0.6 billion in annual dissynergies created from the extra expenses associated with operating three businesses instead of two. Should the specialty product spin-off split into multiple companies, we would probably increase our dissynergy estimate.

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