The biggest news last week and perhaps for all of 2015 was the announcement that long-time rivals Dow Chemical and DuPont‘s intend to merge into a specialty chemicals giant of more than $120 billion.  There are stated plans to split both enterprises into three separate companies providing different specialty chemical based product offerings.

This proposed deal has obvious massive implications.

Saturday’s edition of The Wall Street Journal carried the headline that this deal cements activists’ rise. A profound quote of that article stated:

While they (activists) have become increasingly powerful in recent years, forcing companies to do everything from buying stock to selling assets, their ability to help bring about such a monumental deal represents a new high.

Today, the WSJ further described long-simmering hostilities between Dow CEO Andrew Liveris and activist investor Daniel Loeb which reached a boiling point this weekend after the announcement on Friday. Loeb apparently declared that this deal was too rushed, and called for Liveris’s resignation.

In October, former Dupont CEO Ellen Kullman suddenly resigned after fending off one of the most prominent wave of activist investor assault on a corporate board. Kullman was succeeded on an interim basis by board member Edward Breen while the company searched for a permanent replacement. Breen, whose resume includes being Chairmen and CEO of Tyco International worked with Dow CEO Andrew Liveris to orchestrate this deal.

Our Supply Chain Matters initial perception is that the announced deal provides a significant new and scary watershed as to the degree of influence that activists portend to have on corporate CEO’s. That is qualified, however, as to whether government regulators would allow this deal to go through given the significant implications. Analysts at Piper Jaffrey were quoted as indicating: The global natures of the antitrust hurdles are likely to be significant.”

The National Farmers Union (NFU) has already expressed its frustration for yet another enormous merger. NFU President Roger Johnson declared: “Having just five major players remaining in the marketplace would almost certainly increase the pressure for remaining companies to merge, resulting in even less competition, reduced innovation and likely higher costs for farmers.  This announcement, combined with the on-again-off-again Monsanto/Syngenta merger, is creating a marketplace where farmers will have very few alternatives for purchasing inputs.” The National Corn Growers Association declared it will do all it can to protect farmer interests and preserve an open and competitive marketplace.

Do not be surprised to read of other such declarations.

Since both of these global companies supply materials at the lowest echelons of many different industry supply chains, this proposed merger has significant internal and external implications from many industry value-chain supply dimensions.  These will unfold over the coming days and weeks and will likely take on market, technology and human resource dimensions, since the cost and the scale of this merger is momentous and far-reaching. How long the regulatory approval process actually occurs is likely anyone’s guess.

One thing is certain however, the specialty chemicals industry has reached a watershed moment, one that will likely redefine industry players and their associated supply chains for many years to come.

Bob Ferrari