Dow and DuPont, two of America's oldest giants, to merge in jaw-dropping megadeal
Source: Washington Post
By Drew Harwell December 11 at 9:35 AM
@drewharwell
Two of corporate America’s oldest institutions, chemical giants Dow Chemical and DuPont, will merge into a $130 billion behemoth — and then split again into three companies — in one of the largest megadeals of the year, the companies said Friday.
Since their founding in the 19th century, both companies have researched and produced a sweeping variety of now-ubiquitous chemicals, including the Kevlar in bulletproof vests and the Teflon in nonstick pans, as well as chlorine, Saran Wrap and Ziploc bags.
Today, most of their business is in selling the critical building blocks for the insulation of homes, the production of cars and the planting and harvesting of international farms. The combined company, analysts said, would be the world’s largest seed and pesticide conglomerate, controlling 17 percent of global pesticide sales and about 40 percent of America’s corn-seed and soybean markets.
....
The resulting company, DowDuPont, will be split after 18 to 24 months via tax-free spin-offs into three independent, public companies focused on agriculture, including seeds and pesticides; materials, including coatings, plastics and industrial chemicals; and specialty products, including chemicals key to the electronics, biosciences and health industries.
Read more: https://www.washingtonpost.com/news/business/wp/2015/12/11/dow-and-dupont-two-of-americas-oldest-giants-to-merge-in-job-dropping-megadeal/
The headline is somewhat sensational, but the article came up right away.
When the article says "tax-free spin-offs," what that means is that the shareholder will turn in his shares of the old company, in this case the future DowDuPont, and receive shares of the three new companies that are of equal value to what he just turned in. Since he has experienced no capital gain in the transaction, no tax on the cancellation of the old shares and issuance of the new shares is due.
You used to have something worth $X, and now you have three things that, in sum, are worth $X. That's why the distribution is tax-free.
Now, if you sell those shares in any or all of the three new companies, then you'll have to pay the tax on any capital gains you have experienced since the time you bought the original shares in Dow, DuPont, or DowDuPont. Determining how to allocate the cost basis can be fun. If you made money on the shares, you'll pay taxes on the capital gains.
I'm not a CPA, but I've been through this many times.
As always, this does not constitute financial advice, and consult your tax advisor for zzzzzzz.
Related development:
Corning to Sell Stake in Dow Corning Venture for $4.8 Billion
Move follows news that Dow Chemical has agreed to merge with DuPont
By Chelsey Dulaney
chelsey.dulaney@wsj.com
@chelseydulaney
Dec. 11, 2015 10:05 a.m. ET
Corning Inc. said Friday that it would sell its stake in Dow Corning for $4.8 billion, ending a 72-year joint venture with Dow Chemical Co. that has faced challenges in recent decades.
The sale announcement came the same day as Dow agreed to merge with DuPont Co., creating a chemical giant with a market value of about $130 billion.
Full disclosure: I own shares of Corning. The ticker symbol, CGW, stands for Corning Glass Works.
Previously at DU:
DuPont and Dow Chemical near merger
= new reply since forum marked as read
Yes, Reagan started it, the later presidents followed along with congress with reduced budgets and rules rewritten in favor of by the Justice Department and the Federal Trade Commission. A lot of people came to this party and stayed to this day.
I think a better law to use in this situation is the Clayton Antitrust Act:
The Clayton Act made both substantive and procedural modifications to federal antitrust law. Substantively, the act seeks to capture anticompetitive practices in their incipiency by prohibiting particular types of conduct, not deemed in the best interest of a competitive market. There are 4 sections of the bill that proposed substantive changes in the antitrust laws by way of supplementing the Sherman Antitrust Act of 1890. In those sections, the Act thoroughly discusses the following four principles of economic trade and business:
price discrimination between different purchasers if such a discrimination substantially lessens competition or tends to create a monopoly in any line of commerce (Act Section 2, codified at 15 U.S.C. § 13);
sales on the condition that (A) the buyer or lessee not deal with the competitors of the seller or lessor ("exclusive dealings"or (B) the buyer also purchase another different product ("tying"
mergers and acquisitions where the effect may substantially lessen competition (Act Section 7, codified at 15 U.S.C. § 18) or where the voting securities and assets threshold is met (Act Section 7a, codified at 15 U.S.C. § 18a);
any person from being a director of two or more competing corporations, if those corporations would violate the anti-trust criteria by merging (Act Section 8; codified 1200 at 15 U.S.C. § 19).
link: https://en.wikipedia.org/wiki/Clayton_Antitrust_Act#Contents
Better Daily Living With Chemistry? 