Basic materials exchange traded funds were leading major sectors plays Tuesday as Dow Chemical (NYSE: DOW) and E. I. du Pont de Nemours and Co. (NYSE: DD) were reportedly in late-stage merger negotiations.
Despite the retreat in the broader market on Tuesday, the Materials Select Sector SPDR (NYSEArca: XLB) rose 2.6, Vanguard Materials ETF (NYSEArca: VAW) gained 1.8% and iShares U.S. Basic Materials ETF (NYSEArca: IYM) increased 3.0%.
Dow Chemical and DuPont are in what could be the largest deal in the chemicals industry as two of the oldest American companies worth almost a combined $120 billion join together, the Wall Street Journal reports.
Dow Chemical shares surged 10.8% and DuPont jumped 11.9% on the news Tuesday.
The chemical giants are the largest components in the basic materials sector ETFs. XLB includes a 11.9% tilt toward DD and 11.6% in DOW. VAW holds 7.9% DOW and 7.8% DD. IYM has 11.4% in DD and 11.1% in DOW. The basic materials sector ETFs track a number of diversified, specialty, fertilizer and agriculture-related chemical producers, along with some metals producers.
The merger would bring together two top suppliers of industrial and agricultural chemicals and crop seeds. However, people with knowledge of the matter believe the company could break into two or three companies for antitrust reasons, Bloomberg reports.
The combination of the two old chemical producers would be one of the biggest mergers in a year filled with big deals. Companies have executed some $4.35 trillion in takeovers so far this year, outpacing 2007 as the top year on record for deals.
Moreover, the Dow Chemical and DuPont merger talks could also make it “more likely that Monsanto re-approaches Syngenta,” Bernstein analysts including Jonas Oxgaard previously said.