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Morningstar | DowDuPont plans to separate itself into three businesses by mid-2019.

Dow Chemical and DuPont completed a merger of equals in August 2017. The new company, named DowDuPont, plans to split into three separate companies by mid-2019--one company each in agriculture, materials science, and specialty products. The agriculture company will be named Corteva Agriscience. The materials science company will retain the Dow name, while the specialty products company will keep the DuPont name.DowDuPont’s portfolio is split between basic and specialty products. In basic chemicals and plastics, barriers to entry are low and profitability is determined by scale, integration, production technology, and energy and feedstock costs. With its enormous size and decades of experience, the company has few rivals when it comes to scale, integration, and technology. The shale gas boom has lowered natural gas prices in the United States, and DowDuPont's North American operations have benefited relative to competitors using higher-cost feeds, such as naphtha. To take advantage of lower gas costs, Dow plans to increase its North American capacity. However, because feedstock costs can fluctuate rapidly, Dow is investing in other low-cost sources. The company is wrapping up a $20 billion joint venture with Saudi Aramco, one of the largest oil and gas companies in the world, to build an integrated chemical complex in Saudi Arabia with flexible cracking capabilities. The facility should benefit from some of the lowest-cost feedstocks in the world.The company’s advanced materials business coming from the DuPont side has produced some noteworthy (and high-profit) products over the years. The company invented products such as Lycra and Kevlar, which have wide applications in textiles and safety equipment. Teflon, which is used in nonstick cookware, and Tyvek, broadly used in construction materials, also demonstrate DuPont's successful product development and innovation. The company has a solid record of innovation, and we think it will be able to replace earnings from older products as they fall out of favor or are leapfrogged by new technologies.