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Desperate Dow-DuPont megamerger bad for stocks

Traders work below a board displaying the Dow Chemical logo on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders work below a board displaying the Dow Chemical logo on the floor of the New York Stock Exchange.

Dow Chemical and DuPont are in advanced discussions for a megamerger, a tie-up that sent shares of companies in the materials sector soaring.

But these gains may be short lived, if history is any guide. Big deals in older, more basic industries normally spell doom for the other companies in that space.

What's more, this deal may signal that these two giants believe oil and commodity prices are going to stay under pressure for the foreseeable future, investors said.

"This potential acquisition suggests Dow and DuPont see commodity price pressure as more structural than cyclical, pushing them to attempt to break up their businesses," said Axiom Capital's Gordon Johnson in an email.

While Dow and DuPont use petroleum to make chemicals and plastics, the cheaper input costs are apparently not enough to outweigh deflation for all commodities. A slowing Chinese economy can't help, either.

Investors said this is clearly not a merger born out of strength.

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