What's going on?

Dow Chemical�and Dupont�are two of America�s oldest and largest companies. They are both giant producers of chemicals (like pesticides for farming) and speciality materials (like the Kevlar used in bulletproof vests). They are now in talks to merge into one company in a $120 billion deal � stocks of both companies jumped almost 12% on Wednesday!

What does this mean?

Most of their business lines are �low-growth,� meaning they are established businesses whose sales aren�t growing much. When this is the case, profits can sometimes be increased by gaining �scale,� which can be achieved through big mergers like this one. This deal allows them to lower their costs (the same factory can service more clients, for example), while it also gives the combined company more power to set higher prices, given its larger size. Benefits like these are why mega-mergers can make sense.

Why should I care?

For the stocks: Both stocks shot higher: investors would love to see this deal happen. Interestingly, the new combined company is planning to immediately split into 3 separate companies that will focus on their own products (e.g. agricultural chemicals will be separate from speciality materials like Kevlar). This way the benefits of merging (e.g. �scale�) can be reaped for each business line.

Bigger picture: 2015 is the biggest year ever for mergers & acquisitions (M&A). Last week, the value of global M&A�deals exceeded the previous record hit in 2007. Some say that lots of M&A activity is an indication that the stock market is peaking. This has been true of previous M&A booms, like in 2000 and 2007. But it�s not clear that the same risky factors that drove those booms (like borrowing a lot of money to fund the deals) are driving the current M&A boom and, therefore, whether the result will be the same.