Chemical giants Dow and DuPont agreed to merge late last year, forming a $130 billion company that will split into three companies focusing on agriculture, material science and specialty products such as biomaterials.
But new analysis shows this may not be the “merger of equals” touted by Dow and DuPont. Key businesses from DuPont, like industrial biosciences, will be left under-utilized in its merger with Dow, and potentially be available for acquisition or spin-out, according to Lux Research.
This is already playing out with BASF reportedly considering a counterbid for DuPont.
“As we’ve seen from BASF’s interest in DuPont, the industry is looking at large mergers and acquisitions to help add investor value faster and fill in gaps in their offerings, especially in high growth areas,” Lux Research director Brent Giles told Environmental Leader. “Dow-DuPont creates a sense of urgency that will likely spur further deals.”
The market for biomaterials, which includes biobased chemicals, fuels, and other materials made from renewable sources, is growing. The global renewable chemicals market will reach $84.3 billion by 2020, up from $49 billion in 2015, growing at a compound annual growth rate of 11.47 percent, according to a Research and Markets report published in January.
Also in January, DuPont and Archer Daniels Midland said they have developed a “game-changing” technology that will enable 100 percent renewable chemicals and plastics with applications in packaging, textiles, engineering plastics and other industries.
So what does the Dow-DuPont merger mean for the industrial biosciences industry?
“Our benchmarking shows that DuPont’s strong innovation engine won’t be fully utilized in the new planned companies, particularly within the ill-fitted specialty products company,” says Giles, who created of the Lux Competitive Benchmark.
The Lux Competitive Benchmark compares companies operating in the same space on a business execution axis that looks at its ability to grow and profit, and an innovation metric axis that gauges the strength and value of its technology.
In the merger, DuPont’s innovation engine to be dispersed, Lux says. While Dow’s core businesses are driving the merger, DuPont is the senior partner when it comes to innovation, rating well ahead of Dow on Lux’s innovation metric. However, the planned break-up of DowDuPont into three companies will leave some of its most innovative groups side-lined.
The analysis also says the merger undervalues DuPont’s Industrial Biosciences business, which consists of enzyme manufacturing, cellulosic ethanol, high-performance materials made from renewable sources and a range of other biotechnology products and services. Its technology is cutting-edge, with an innovation metrics score trailing only DSM’s, according to the benchmark, and its profitability is solid. But in the new Dow-DuPont specialty products company, its biomaterials will no longer enjoy any synergy with DuPont’s other materials offerings because of the three-way split.
“Separating biomaterials from the more traditional divisions tends to bucket biomaterials as a special case rather than organically diversifying feedstocks over time, which arguably would be a better outcome,” Giles says.
This creates business opportunities for other companies in the biomaterials space — which could be good news for BASF.
“This very interesting DuPont division was an integral part of DuPont’s strategy but has now been knocked out of its context, giving competitors an opportunity to snap it up,” Giles explains. “We may also see specific technologies or assets — like DuPont’s cellulosic ethanol efforts — become easier to pry out of the company for interested competitors.”