What's going on?
DowDuPont, the chemicals group created by the $156 billion merger of Dow Chemical and DuPont (which was completed at the end of August), announced a change to how it plans to structure the new company – and investors sent the stock up over 2%.
What does this mean?
The deal to combine Dow and DuPont was first agreed in December 2015 (it took more than 18 months to close, as competition regulators took their time examining the deal’s implications). The plan was always for the company, once combined, to be spun out into three separate companies: materials, specialty products and agriculture. But several investors were originally upset that the fast-growing silicone part of DowDuPont’s business was going to be included in the “materials” company rather than in the faster-growing “specialty products” company. Investors argued that the silicone business would perform better if combined with other dynamic, fast-growing product areas – and DowDuPont ultimately accepted their view.
Why should I care?
For the stock: The idea is that the latest change allows for better synergies, which should be good for DowDuPont’s stock.
By recategorizing the silicone part of its business in accordance with investors’ wishes, DowDuPont should be able to get greater value by benefiting from synergies (e.g. combining various businesses that serve the same customers allows for more targeted innovation, better brand recognition, etc.). This, in turn, should benefit its stock.
The bigger picture: “Activist investors” can pressure large companies to make big changes.
Activist investors are investors who buy shares in a company and try to effect changes in the business that, they think, will boost the stock price. DowDuPont’s structural changes came as a response to pressure from several activist investors. This can be good or bad for a company (here’s a deeper discussion on the topic), often depending on whether the activist investors’ plans offer long-term value (or simply a short-term benefit).