Consolidation begins in the chemical industry
Recently, the global chemical industry has witnessed a few M&A (mergers and acquisitions) deals and started consolidating as the big chemical players were involved in the deals. Major deal talks started with Monsanto and Syngenta in May 2015 when Monsanto expressed its interest in acquiring Syngenta. Since then, the leading chemical players such as Dow Chemical (DOW), DuPont (DD), Monsanto (MON), BASF, Syngenta (SYT), Bayer, and Air Liquide have been looking to consolidate their position in their respective core industry segments.
Over the last few years, most of these big players were divesting their non-core assets and businesses to increase their focus on core competencies. This is due to the pressure from their shareholders and activist investors to improve business performance and overall shareholders returns. The chemical industry is highly sensitive to crude oil prices, currency fluctuation, crop prices, and overall economic prospects. These factors have impacted the sales and margins of most of the chemical players of late. This has started the consolidation phase along with focused investment across chemical segments.
Dow Chemical and DuPont merger
Dow Chemical (DOW) and DuPont (DD), two of the world’s leading chemical companies, have announced that they will merge to form the world’s largest chemical company by market capitalization. It will be an all-stock equal merger and is expected to be closed in the next 18 to 24 months. The newly merged company will be called DowDuPont. The market capitalization of the merged company was around $130 billion as of December 11, 2015.
Airgas and Air Liquide deal
The European industrial gas giant Air Liquide SA acquired the US-based industrial gas player Airgas (ARG) for $10.3 billion on November 17, 2015. Airgas produces industrial gases that are primarily used in manufacturing, healthcare, as well as food and beverages, among other areas. Air Liquide acquired Airgas to increase its global reach and balance its product portfolio. The combined market capital of these two companies is close to $50 billion.
Previously, Eastman Chemical (EMN) acquired Taminco for $2.8 billion in September 2014. Another deal was between Huntsman and Rockwood, at $1.1 billion in 2013.
The Materials Select Sector SPDR (XLB) ETF largely tracks the performance of major chemical players. Another ETF, the iShares US Basic Materials ETF (IYM), tracks the performance of the US-based basic material companies, including those involved in chemicals. DOW and DD form 22% of XLB’s total holdings.