Dow Chemical’s farm business seen attractive bet for DuPont

Date:10-23-2015

Chemical conglomerates Dow Chemical Co and DuPont both made big bets on their farm businesses over the past two years, but their fortunes have diverged dramatically.

While DuPont is growing ever more dependent on its farm business, Dow said on Thursday is may exit the business altogether, and analysts touted DuPont and Monsanto Co as potential buyers.

To be sure, the agriculture industry is struggling to cope with falling crop prices and weak demand for crop protection products, which has led to falling sales in the farm business at both Dow and DuPont.

But, analysts say that while DuPont’s fortunes could turn as the industry’s recovers, Dow is also struggling with more company-specific problems at its seed business.

These issues, which include a poor distribution network, a limited variety of hybrids and high R&D costs, would not hinder companies with a bigger scale and they could even benefit from Dow’s R&D capability and a robust pipeline of new products.

"A different owner might be able to boost profitability immediately,” said James Sheehan, an analyst with SunTrust Robinson Humphrey. He estimates selling the business could net Dow proceeds of about US$15 billion.

Monsanto, the world’s largest seed company, is looking for acquisitions after its failed $47 billion bid for Syngenta .

But Dow’s agrosciences business is no match to Syngenta – it is only half the size and its seed business lags far behind.

For DuPont, however, buying Dow’s farm business would give it the scale to compete with bigger players, especially in the crop protection market.

DuPont’s global market share would jump to about 16 percent after a deal, similar to that of Syngenta, Bayer AG and BASF SE, said Grayson Witcher, a portfolio manager at Mawer Investment Management Ltd.

A deal would also help DuPont boost its trait business through Dow’s genetically-modified “Enlist” corn and soybean traits, which Dow has said has a market opportunity of about $1 billion.

But, Witcher said DuPont “may pass on the opportunity” due to the internal upheavals at the company.

Edward Breen took over as DuPont’s interim CEO earlier this month, a change that came as the company is looking to aggressively cut costs to avoid a second proxy battle with Nelson Peltz.