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$130 Billion Dow-DuPont Merger Finally Gains EU Approval

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The European Union approved on Monday the proposed merger between The Dow Chemical Company (DOW - Free Report) and E. I. du Pont de Nemours and Company (DD - Free Report) . The EU approval came after both Dow and DuPont committed to divest major portions of different businesses.

The EU approved the $130 billion merger that will see the two industry giants separate into three different publically traded companies focused on agriculture, material science, and the production and sale of specialty products. The Dow and DuPont merger is expected to lead directly to $3 billion in cost savings.

In the wake of the news, Dow’s stock is up 1.32% to $63.91 per share through early afternoon trading on Monday. Dow’s stock is a Zacks Rank #3 (HOLD). DuPont’s stock is up 1.41% to $80.72 per share and is a Zacks Rank 3# (HOLD).

DuPont is scheduled to sell most of its global pesticides business as part of the deal. The company will also drop a ton of its global research and development business. Dow is set to sell a lot of its petrochemical, acid copolymers and ionomers business.

The moves to sell significant portions of both companies were spurred in part by the EU’s concern that the Dow and DuPont deal would disincentivize innovation, specifically for herbicides and pesticides, and create less competition if both companies were allowed to keep all current business assets.

"We need effective competition in this sector so companies are pushed to develop products that are ever safer for people and better for the environment," European Competition Commissioner Margrethe Vestager said in a statement.

"Our decision today ensures that the merger between Dow and DuPont does not reduce price competition for existing pesticides or innovation for safer and better products in the future."

Talks of the Dow and DuPont deal were first reported in December 2015. Since then, both companies have spent time deciding how to break up its businesses in order for the massive deal to gain regulatory approval. Dow and DuPont announced in February both companies were willing to divest more businesses in order to address anti-trust concerns. Dow and DuPont plan to divest the different assets with a single buyer.

Top executives from both Dow and DuPont called the deal a merger of equals. The two companies said that the EU’s conditional approval "is pro-competitive and maintains the strategic logic and value creation potential of the transaction."

The Dow and DuPont deal is still awaiting approval from regulators in the United States, Brazil, China, Canada and Australia. But both Dow and DuPont are confident the deal will pass all remaining regulatory obstacles.

Concerns & Other Massive Mergers

Friends of the Earth Europe, a lobbying group, say that the DuPont and Dow merger could lead to the three new companies controlling 70% of the world's agrichemicals and over 60% of commercial seeds.

"This decision to allow Dow Chemicals and DuPont to form the world's biggest agribusiness company will give giant corporations an even tighter toxic grip on our food and countryside. For the public and nature such mergers are marriages made in hell," Adrian Bebb of Friends of the Earth Europe said in an interview.

The DuPont and Dow merger is the first of three major mergers that will reshape the chemical and agricultural industry.

The EU is nearing its deadline to approve China National Chemical Corp.’s $43 billion bid to acquire Switzerland-based pesticide and seed maker Syngenta AG .

German-based chemical giant Bayer AG announced its planned $57 billion acquisition of U.S.-based seed maker powerhouse Monsanto Company . The deal is expected to begin its formal EU approval process in the second quarter of 2017. Bayer and Monsanto could face a similar hard-line stance to divest and sell assets.

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