by Jack Kaskey

DuPont Co. said it can address antitrust regulators’ concerns that its merger with Dow Chemical Co. could limit discovery of new agricultural pesticides, boosting investor confidence that the $72 billion deal will be approved. 

Regulators are mostly concerned that the combination could hurt innovation in crop-protection chemicals, Chief Executive Officer Ed Breen said Tuesday on a conference call to discuss fourth-quarter results. The remedy will involve products as well as related research and development resources. He didn’t provide specifics, but the process could involve selling assets.

The merger of the two biggest U.S. chemical makers will close by the end of June, three months later than previously anticipated, Wilmington, Delaware-based DuPont said in a statement. The tie-up -- along with Bayer AG’s agreement to buy Monsanto Co. and China National Chemical Corp.’s deal to buy Syngenta -- could reshape the agricultural-products industry.

The European Union, which has questioned whether the DuPont-Dow combination would slow development of new pesticides, on Monday granted a 10-day extension to March 14 as the deadline for review. The companies requested the delay to fine-tune a package of concessions.

“My gut is we are in the second quarter” to complete the merger, Breen said on the call. He noted that smaller jurisdictions typically wait to rule on competition issues until after action by larger ones, such as the EU and the U.S.

Shares Advance
Breen’s comments helped reassure investors that DuPont can satisfy regulators, said Matt Arnold, an analyst at Edward Jones & Co.

“People feel better after hearing them talk through what is going on,” Arnold said. “Their conversations with regulators seem to be going well.”

The shares advanced 3.4% to $75.51 at 11:31 a.m. in New York, logging the biggest gain in the Dow Jones Industrial Average. Dow Chemical gained 3.1% to $58.89.

The disclosure that antitrust concerns are focused on pesticides is positive for the merger, Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., said in a note. Selling crop-protection assets is “significantly easier” than seeds because there are more potential buyers, including FMC Corp., Syngenta AG and BASF SE, he said.

Regulatory Approvals
Antitrust clearances also are needed in China, Brazil and the U.S. Eighteen months after closing, the new DowDuPont Inc. is to split into three publicly traded entities, including an agriculture company that would be larger than current market leaders Monsanto and Syngenta. 

DuPont ended its tradition of issuing a full-year earnings outlook because it expects the merger to close by mid-year. The company forecast that first-quarter net income will decline about 18% from a year earlier, partly because of a merger-related expense. Earnings are expected to rise about 8% on an operating basis.

Fourth-quarter profit exceeded analysts’ projections amid cost cuts and increased sales of plastic auto parts and food ingredients.

Adjusted earnings climbed to 51 cents a share, compared with the 42 cent average of estimates compiled by Bloomberg. Revenue fell 1.7% to $5.21 billion. Analysts had projected $5.32 billion. 

Sales declined largely because the company now sells agricultural products in the southern U.S. directly to farmers rather than through third-party retailers, DuPont said.

The performance-materials unit increased operating earnings by 47% as sales volumes climbed 7% on demand for engineered plastics used in autos. Earnings in the nutrition and health segment climbed 50% on cost savings and higher sales of sweeteners and probiotics.

Cost Cuts
Earnings growth in the quarter was bolstered by a 9% reduction in operating costs. CEO Breen is eliminating 10% of the workforce under a plan to reduce annual expenses by $730 million ahead of the merger. Realized savings for the year were $750 million, DuPont said in a slide presentation.

DuPont and Dow plan to cut another $3 billion from the combined DowDuPont, including $300 million from research and development spending. Cuts to R&D won’t involve scientists who develop new products, Breen said on the call.

To contact the reporter on this story: Jack Kaskey in Houston at mailto:[email protected]

To contact the editors responsible for this story: Brendan Case at mailto:[email protected] Tony Robinson, Mark Schoifet

© 2017 Bloomberg L.P