Treasury cooperation plays a key role in one of the world’s biggest mergers

The challenge

When DuPont’s US$130bn merger with The Dow Chemical Company was approved by the European Union competition authorities on 31st March 2017, the green light came with conditions to divest certain businesses. One of the required divestitures was a significant portion of DuPont’s crop protection business. An agreement was reached with chemical firm FMC Corporation, which would acquire key parts of DuPont’s crop protection business while at the same time selling its health and nutrition business to DuPont. The challenge for the treasury teams in DuPont and FMC was managing what was effectively two simultaneous mergers and acquisitions, all within a very demanding schedule.

The solution

The treasury departments of DuPont and FMC concluded early on that the only solution was for the two teams to collaborate on the project. Both organisations banked with Bank of America Merrill Lynch, so the first step was for all three parties to scope the project and determine the banking structure required to support the elements of business functions and products to be exchanged.

The task was made more complex by the fact that the DuPont crop protection portfolio was largely a purchase of key assets across 50 countries and not discrete business units; some of the FMC health and nutrition assets did not exist as separate entities and would have to be split from FMC’s agricultural businesses – in some markets new FMC legal entities had to be formed and bank accounts created to complete the acquisition.

In all, FMC had to create more than 20 legal entities globally, together with all the required bank accounts and connectivity, as directed by DuPont, in order to allow for an accelerated closing of the deal. This put an extra burden on FMC, as it forced the company to use DuPont banking structures and connectivity that were foreign to FMC’s treasury.

Part of the agreement between the two companies was that each would continue to operate the business they were selling for two years under a transition services agreement, but that the new owner would provide reporting to the other party to help with hedging and other activities. This meant setting up clone accounts and integrating them with the companies’ existing treasury technologies.

The close co-operation between the two treasury teams had the desired effect: by 31st August sufficient progress had been made to facilitate the closing of the merger and by 1st November the treasury set-up was complete, allowing the sale of the businesses to go ahead as planned.

This is a very rare example of the treasuries of two major corporations working together, and with their bank, to reach a common goal. That this was possible at all was a result of treasury being identified early in the deal process as a critical factor for success and becoming a key part of the overall plan.

The speed of the transition was remarkable; between 31st March and 1st November, despite the Europe-wide slowdown in August, the SAP set-ups in both businesses had been cloned, new legal entities created when required, and bank accounts opened, all of it integrated into the companies’ treasury systems to meet the deal deadline. Today each business has regular reporting from treasury of its new acquisition, even though they are still being run by the previous owners under the transition agreement.

• The project enabled DuPont to complete its required divestiture and proceed with its US$130bn merger with Dow.
• Both treasuries were able to maintain oversight over their newly acquired businesses.
• Integrated technology and aligned processes.

Key learning points

The accelerated timetable which was set and required by the regulators pushed both companies to heightened readiness state. Initial meetings between the two organisations quickly identified key concern areas and enabled the establishment of key milestones critical to meet the November 2017 deadline. Key learnings from the project are as follows:

• Understanding the organisation’s culture and reporting structure including how decisions are made within the other company.
• Internally supporting justifiable concerns of your counterparts.
• Building strong links with all stakeholders.
• Establishing clear accountability.
• Establishing clear project leaders and reporting lines in each organisation.
• Establishing regularly scheduled meetings:
  • Reviewing progress against set milestones.
  • Jointly reviewing and addressing new issues which have been identified.
• Taking time to enable and facilitate constant communication.

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