Wallaces Farmer

Dow-DuPont merger announcement last week reminds me of a press conference I attended at Pioneer Hi-Bred headquarters in 1999.

Rod Swoboda 1, Editor, Wallaces Farmer

December 15, 2015

9 Min Read
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Last week's rumors became reality when the news broke December 11 that two big companies with strong agricultural interests plan to merge. DuPont and Dow Chemical Company unveiled their plan to create a $130 billion merged company known as DowDuPont. The agreement calls for establishing three independent publicly traded companies. The announcement reminded me of what happened in 1999, when DuPont bought Pioneer Hi-Bred, which at the time was the world's largest seed firm. It was headquartered here in Des Moines, as it still is today although it's now known as DuPont Pioneer. I attended the 1999 press conference, took notes and remember it well. I asked a good question at that event, and got a unique answer from the corporate officials. More on that later in this blog; first here's what was announced last Friday.

The Dow-DuPont deal announced last week is sure to face considerable regulatory scrutiny. This mega merger between the two large chemical companies would be the 10th acquisition of more than $50 billion in value announced this year involving U.S. companies. DuPont is the parent of DuPont Pioneer, the seed firm that's one of Iowa's largest employers and is headquartered in Johnston, a Des Moines suburb. Company executives and analysts say the merger will likely result in thousands of jobs lost as the chemical giants slash at least $3 billion in costs.

Dow-DuPont merger seeks to reduce costs, improve efficiency
The merger agreement is the first step in a process that will take 18 to 24 months, say Dow and DuPont officials. One key goal is to cut costs and make the new companies better able to compete and thrive in a global market. DuPont kicked off the cost-cutting on Friday saying it plans a $700 million restructuring next year that will result in loss of about 5,400 of its 54,000 worldwide workforce. It's unclear how many of those jobs would come from central Iowa, home to most of Pioneer's 3,400 jobs in Iowa.

DowDuPont plans to spin off three publicly traded companies within two years of the merger being approved by government regulators. The firms will be:

1) A new ag company that will market products from both Dow and DuPont including herbicides, fungicides and seed. Pioneer is the nation's second-largest seed company and Dow has the Mycogen Seed brand. The new ag company would be worth $19 billion based on the units' combined 2014 income.

2) A materials science company that would have revenues of $51 billion, based on 2014 results.

3) A specialty products company with combined revenue of $13 billion.

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The new ag company would be larger than Monsanto Co., the world's largest seed business, based on revenue, and would be in a stronger position to compete, says Edward Jones analyst Matt Arnold. Pioneer and Dow AgroSciences, combined, would be a formidable player in the seed and chemical business. Arnold sees little overlap between Dow and DuPont. Chad Hart, Iowa State University ag economist, agrees, saying "The merger puts together a company that's strong on the seed side with Pioneer and strong on the chemical side with Dow."

Combined company would give farmers more choice
DuPont CEO Edward Breen says the new Dow-DuPont ag company "gives the farmer a lot of product choice, a diversity." But state, federal and farm leaders have called for close inspection of this proposed merger. Iowa U.S. Sen. Chuck Grassley says it needs to be seriously scrutinized. Iowa attorney general Tom Miller has concerns about the possibility of increased ag concentration and his staff plans to learn more about the merger and the impact it would have on Iowa agriculture.

Iowa Ag Secretary Bill Northey says, "The current downturn in the farm economy creates challenges for ag companies and it is critically important for them to maintain competitiveness." He adds, "If this merger does move forward it's important that the efficiencies gained in producing seed and chemicals are reflected in savings to producers."

Economic decline in U.S. farm economy is a factor
DuPont cites the current economic decline in the U.S. farm economy in its plan to reduce costs next year. USDA forecasters say U.S. farm income is expected to plunge 36%, to $58.2 billion in 2015, its lowest level in 9 years, due to low corn and soybean prices and high costs for seed, fertilizer and other inputs.

Neil Hamilton, ag law professor at Drake University, sees few antitrust concerns with a combined Dow and DuPont ag company. It's different than when Monsanto, the world's largest seed company, was trying to buy Syngenta AG last summer, he says. That combination would have controlled about 45% of the seed market, more than twice as much as Pioneer.

Careful not to harm research and development
DuPont CEO Breen says about $1.3 billion in expected cost savings would come from combining Dow and DuPont ag operations. He says the merger team would be careful not to cut too much from the research and development budget. "A key benefit is that these are science-and-technology driven companies. We don't want to hinder the future growth of these businesses. In our plan, we have taken out duplication but haven't removed anything that would hurt business growth."

Farm groups are cautiously studying the merger plan
The National Corn Growers Association is studying the impacts of the proposed merger. "We are committed to protecting the best interests of our members and the nation's corn farmers," says NCGA president Chip Bowling. "With respect to the proposed merger, we anticipate we will have an opportunity to submit comments regarding the effect this merger may have on ag research, innovation, grain marketing and the competitive pricing of farm inputs. We will do all we can to protect farmer interests and preserve an open and competitive market."

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Similarly, the American Soybean Association issued a press statement that it, too, is studying the merger. The National Farmers Union, however, is not as welcoming of the merger, suggesting it could result in less competition, reduced innovation and "likely higher costs for family farmers." NFU president Roger Johnson adds, "The standard against which to measure any merger is whether it will increase competition in the marketplace, and almost certainly this merger will leave us with much less, not more, competition."

And now, the rest of this story
In the fall of 1999 I attended a press conference and shareholder meeting for Pioneer Hi-Bred International, at the seed company's headquarters at Johnston, Iowa. It was announced that day, on Oct. 1, that Pioneer's shareholders had overwhelmingly approved the merger in which DuPont would acquire 80% of the Pioneer stock not currently owned by DuPont. DuPont had previously bought 20% of Pioneer's stock. So the completion of the merger was expected shortly.

"The joining of Pioneer with DuPont will provide tremendous benefits for Pioneer customers, shareholders, employees and all of our stakeholders," said Charles Johnson, Pioneer chairman, president and CEO at that time. "With DuPont, we can better fulfill our longstanding mission to help feed the world's growing population in a sustainable way, while exploring innovative ways to make a wide variety of products in a more earth-friendly way."

Pioneer Hi-Bred merged with DuPont in 1999
Johnson spoke and so did William Kirk, president of the ag division of DuPont, that day in 1999. They both talked about the history of Pioneer, how it was founded by Henry A. Wallace in 1926 to produce and market hybrid seed corn. Wallace was a corn breeder and was prominent in the development of hybrid corn. His family founded Wallaces Farmer magazine many years before, and he served as editor.

Both Johnson and Kirk talked about how the seed business had changed and it was now 1999 and they spoke of the need for both companies (DuPont and Pioneer) to combine forces to further develop the new science: biotechnology for agriculture. Genetically modified, biotech corn and soybean varieties that resist glyphosate herbicide had already been on the market for a few years. More biotech was coming, and other companies, including Monsanto, were developing new biotech traits for corn, soybeans and other crops.

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The bottom line, said Johnson and Kirk: Pioneer needed DuPont's research capabilities to develop biotech traits and likewise DuPont needed access to Pioneer's research and marketing capability for seed.

What would Henry A. Wallace think of this merger?
Then it came time for questions and answers from the large group of stockholders and media who had gathered at that Oct. 1, 1999 meeting—a couple hundred people filled the auditorium of the Carver Center on the Pioneer campus at Johnston. Sitting in the audience in the fourth row, in front of the stage where Pioneer and DuPont corporate executives were seated facing the audience, I raised my hand and asked: "What would Henry A. Wallace think of this merger?"

Kirk, the president of DuPont, answered first, saying he believed Wallace, if he were still alive, would approve of the merger. Wallace would realize that Pioneer Hi-Bred needed access to the new science and technology development capability DuPont offered—to keep up with the competition in the seed business. He admitted, the competition was mainly Monsanto, which was licensing the Roundup Ready trait to other companies, including Pioneer.

They asked Jean Wallace Douglas for her opinion
Charles Johnson, the Pioneer president, agreed with Kirk, that Henry A. Wallace would approve of the DuPont-Pioneer merger. And Johnson added, "We called Jean Wallace Douglas, Henry A. Wallace's daughter, and asked her that question. She thinks this merger is good, for the future of Pioneer, the company her father founded. She said her father favored the advancement of farming and food production to feed a hungry world, and he used science-based methods to accomplish those goals and to improve yields. Jean favors Pioneer merging with DuPont."

Jean Wallace Douglas is no longer alive. She died in 2011 at age 91, the last surviving child of Henry A. Wallace. The name Pioneer Hi-Bred stayed with the company from that October 1999 meeting until June 2012. In late June 2012 one of Des Moines oldest business names, Pioneer Hi-Bred, was changed to reflect the corporate ownership of parent DuPont. The name DuPont Pioneer was phased in gradually, first to growers and suppliers and then to the public, with a new corporate logo that maintained the familiar trapezoid border.

When Pioneer was founded by Wallace and a group of Des Moines investors in 1926, the company was first known for a decade as Hi-Bred Corn Company. They added the "Pioneer" name in 1936. In 1970, Pioneer expanded the name to "Pioneer Hi-Bred International."

About the Author(s)

Rod Swoboda 1

Editor, Wallaces Farmer

Rod, who has been a member of the editorial staff of Wallaces Farmer magazine since 1976, was appointed editor of the magazine in April 2003. He is widely recognized around the state, especially for his articles on crop production and soil conservation topics, and has won several writing awards, in addition to honors from farm, commodity and conservation organizations.

"As only the tenth person to hold the position of Wallaces Farmer editor in the past 100 years, I take seriously my responsibility to provide readers with timely articles useful to them in their farming operations," Rod says.

Raised on a farm that is still owned and operated by his family, Rod enjoys writing and interviewing farmers and others involved in agriculture, as well as planning and editing the magazine. You can also find Rod at other Farm Progress Company activities where he has responsibilities associated with the magazine, including hosting the Farm Progress Show, Farm Progress Hay Expo and the Iowa Master Farmer program.

A University of Illinois grad with a Bachelors of Science degree in agriculture (ag journalism major), Rod joined Wallaces Farmer after working several years in Washington D.C. as a writer for Farm Business Incorporated.

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