Metrics That Matter: DOW & DuPont Merge

 

DOW and DuPont completed their merger on Friday. The Dow/DuPont company is now a reality. The Company is now $150 Billion and will be managed by the former DuPont Chief Executive, Ed Breen. (For perspective, the company is 2X the size of P&G in 2015.) The intention is to break the company into three parts--agriculture, material science, and speciality products--over the next 18 months. While DOW has been very focused on employee productivity, the advantage of better employee productivity (2-3X the peer group), this has not translated into a margin advantage.

Table 1: Performance and Improvement for Chemical Companies

DOW operates at 7% margin while DuPont has a 12% operating margin. DOW has double the inventory turns of DuPont. Note that neitther company has driven improvement on the Effective Frontier towards "Best Scenario." Each has gone through managerial and organizational gyrations resulting in shifts in the Metrics That Matter. The lack of progress in growth, costs and inventory made the company vulnerable for shareholder activism. The Company is looking to generate savings of 3B$ within two years. Both companies operate very different strategies as shown in Figure 1.

Figure 1. DOW and DuPont Orbit Chart for the Period of 2004-2016

 

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