This morning Dow Chemical Co (DOW – Analyst Report) and DuPont (DD – Analyst Report) announced they will merge to form DowDuPont. This merger will fuse two of the oldest companies in the U.S. into a chemical giant worth roughly $130 billion. 

Why Merge?

Both companies have been under pressure as of late from shareholders who are looking for the chemical companies to find faster-growing products and navigate the current commodity slowdown in a profitable manner. The merger looks to find synergies of roughly $3 billion dollars and the combined DowDuPont giant will achieve even greater pricing power thanks to its massive size as well.

Further down the line,DowDuPont also looks to spin-off its business into three new publicly traded companies. These companies will each focus on their own distinct business line including Agriculture, Material Sciences, and Specialty Products. The Specialty Products’ company will mostly be every product that doesn’t fit into either Agriculture or Material Sciences.

Other Factors

DuPont also announced this morning they’ll be cutting $700 million in costs in 2016, which could impact about 10% of their global workforce. Furthermore, DuPont also mention that sales growth next year will be challenging due to agriculture headwinds, and the strengthening of the U.S. dollar against the Brazilian Real among other global currencies.

Dow has said they’ll take full ownership of Dow Corning Corp, and they have said the move expects to yield more than $1 billion in annual earnings before specific costs including interest, taxes, depreciation, and amortization. This transaction is slated to be finalized within the first half of 2016.

Both companies have said this morning that they are facing “tectonic shifts” within the chemical industry that have required them to transform to meet both customers’ and shareholders’ needs. This move to merge is certainly a huge step in that direction.