The barbarians are at the gate again – but on Du Pont they’ve got it right

US Outlook: The idea is to merge the two companies then split the new entity into three new pieces

No wonder the comparisons with Barbarians at the Gate, the book written in the wake of KKR’s 1988 leveraged buyout of RJR Nabisco, are abundant. Two venerable industrial giants, pressured by big-name hedge funds and activist investors, throw in the towel and devise a feat of financial engineering that will make Wall Street millions in fees and to hell with the human consequences. A fair comparison? Well, yes and no.

The two companies concerned, Du Pont and Dow Chemical, have been big players on the American industrial landscape for a combined total of more than 330 years. On this side of the pond, that’s practically the Dark Ages.

The idea is to merge the two companies then split the new entity into three new pieces – agricultural, speciality products and materials. An investment banker’s dream, fees galore and $3bn worth of “synergies” that ought to give most of the two companies 113,000 employees plenty of reason to brush up their curriculum vitae.

According to various reports, the two companies have been talking about a merger for some time. It can’t be that long – Du Pont’s chief executive, Edward Breen, has only been in the job for a matter of weeks following the October departure of his predecessor Ellen Kullman, and she (publicly at least) fought heroically against giving into demands along the same lines.

Even so, the idea is not without merit despite the questionable motives of its outside influencers. The merger and subsequent split – should regulators allow it, and US regulators have grown a pair over the last 18 months or so – is nothing short of an outright victory for a handful of the biggest names in hedge funds and activist investment. Nelson Peltz of Trian Partners lost the battle against Ms Kullman at Du Pont but appears to have won the war. Meanwhile, Daniel Loeb of Third Point has been just as aggressive with the board of Dow Chemical. To the victors, the spoils: both stand to reap significant profits if the deal goes ahead as planned.

In the short term it’s an expensive way of forming three separate companies. Doubtless there will be a hit on research and development and unlucky staff will be synergised into looking for new employment. Wall Street will cheer, as has been shown by the sharp rise in the stock prices of both companies, and investment bankers will cash in on some huge fees.

Painful though the merger and split is likely to be, the longer-term outlook is much rosier. Three focused, industry-leading companies, unencumbered by leadership focused on a broader industrial base and activist investors, ought to be in a better position to create value (and new jobs). Both companies are facing serious competition from outside the US and the strong dollar is doing neither any favours. The academic evidence suggesting that dermergers are better than mergers hasn’t evaporated just because this year has been a record one for mega-deals. On the contrary, demergers are also very much in vogue.

It’s hard to feel great enthusiasm for a deal that will lead to the disappearance of two of the most storied names in American industry. It’s also hard not to feel sympathy for the people whose jobs will disappear in the short period when the two companies become one.

However, it should also be pointed out that Dow Chemical and Du Pont have long danced to the Wall Street tune themselves – buying up smaller companies and doing to their staff what they are about to do to their own.

Comparisons with Barbarians at the Gate (still a great read, by the way) are not that wide of the mark. However, the argument that modern investor demands for instant gratification stifle innovation is hard to make – and far from being a disaster for US industry, this deal creates a better long-term outlook for Du Pont and Dow Chemical.

Atlassian is one to watch – and emulate

The last initial public offering of the year on the US markets took place this week. It was also one of the strangest: a tech company that actually makes a profit already and hasn’t been valued in the stratosphere by venture capitalists. Like I say, just weird.

Atlassian, an Australian company selling cloud-based instant chat and bug-tracking tools that can be developed independently by software programmers, is already 13 years old and has grown organically without resorting to ridiculous valuations to tempt venture capitalists into giving it millions. Its modest roots and sensible management resulted in a pre-float market capitalisation of around $4.4bn – fair enough given its revenue growth and profitability.

The company sold 22 million shares in the IPO at $21 apiece, above the expected $19 to $20 range, and closed at just under $28 on the first day of trading. Most of the stock sold allowed staff to cash in on long-term options and savings.

In a tech world dominated by the latest absurd Uber or Airbnb valuation, it’s a breath of fresh air. Atlassian’s founders and majority shareholders, Scott Farquhar and Mike Cannon-Brookes, have avoided the temptation to leave their native Sydney and relocate to Silicon Valley. Despite that, the company has managed to develop a customer base that covers 160 countries.

Investors, particularly those with billions burning holes in their pockets, are obsessed with instant gratification and tech unicorns. Instead, Atlassian has done things the old- fashioned way. As a result it provides a relatively low-risk entry into a high-growth market – and whatever happens to its stock now that it is trading on Nasdaq, it’s not going to implode overnight.

Atlassian is a very rare beast: a stock that has come to the market with a track record rather than with hype. That’s even more rare than a unicorn.