Question

Discuss various examples of corporate restructuring and divestitures in the past 10 years, including asset sales, equity carve-outs, and spin-offs. Include in your discussion the temporary merger of Dow-DuPont, and the breakup of the company into three different operating companies through the spin-off process, resulting in three different companies specializing in agricultural chemicals, mainstream chemicals, and specialty chemicals.

Answer 1

Divestitures, understood as the parent company’s disposal and sale of assets, facilities, product lines, subsidiaries, divisions and business units, are emerging as a central topic of research in several areas. Yet our understanding of these operations is still limited. For example, it is still not clear whether divestitures are merely a reflection of the economic cycle, a means to correct or reverse previous strategic decisions, or a proactive strategic option.

Restructuring and divestitures have become indispensable elements of corporate strategy for many firms (Kolev 2016). In its 2016 Global Corporate Divestment Study, Ernst and Young reports that nearly half the firms surveyed are planning a divestment in the next 2 years and that another 46% are considering the possibility (Ernst and Young 2016). The term divestiture (or divestment) stands for a number of unbundling operations by which firms adjust their ownership structures and reduce their business portfolio scope (Brauer and Wiersema 2012; Moschieri and Mair 2008), most prominently through sell-offs, spin-offs, and equity carve-outs (Brauer 2006; Mulherin and Boone 2000). Divestitures can increase a firm’s strength by changing its asset structure and resource allocation patterns. It can be a major factor in firms’ achievement of global competitiveness (Kavadis and Castañer 2015; Zschoche 2016).

Dow Chemical and DuPont are merging to form a company valued at about $130 billion as they tried to counter falling commodities prices and weakness in some key markets that have pressured their giant agriculture and chemicals businesses.

The two companies, whose research has brought the world products ranging from Ziploc bags and Saran wrap developed by Dow to DuPont’s Teflon coatings and Nylon and Kevlar fibers, first formed DowDuPont, then separate into three independent publicly traded companies focused on agriculture, material science and specialty products.

DuPont’s agriculture, nutrition and health and industrial biosciences units to be combined into a single growth company, separate from the more cyclical businesses of performance materials, safety and protection, and electronics and communication.

Similarly, Dow has been pressured by hedge fund Third Point LLC, led by activist investor Dan Loeb, to split its specialty chemical and petrochemical businesses. Dow avoided a proxy fight by adding four independent directors, giving board seats to two Loeb nominees.

Both Dow and DuPont had activist shareholders who had sought breakups of these companies, so ultimately the visions of these activists are being realized