Is a Dow-DuPont merger good or bad for U.S. biz?

Activist investors Daniel Loeb and Nelson Peltz may have lost their respective battles with chemical industry giants Dow Chemical (DOW) and DuPont (DD), but as media reports of the companies being in "advanced" merger talks indicate, they may have won the war, which worries some observers.

Dow (hounded by Loeb and his Third Point hedge fund) and DuPont (hounded by Peltz and his Trian Fund Management hedge fund) had resisted calls from the billionaires to split themselves up. But now they're said to be considering a merger that would actually result in three separate companies focusing on agriculture, materials and specialty chemicals. The talks could still fall apart, and it wasn't clear whether the split would satisfy the concerns of antitrust regulators. Both Dow and DuPont declined to comment for this story.

The potential breakup of Dow and DuPont is the latest victory for activist investors demanding change at the highest echelons of Corporate America. Alcoa (AA), the world's largest aluminum maker, recently announced plans to split itself in two, while Hewlett-Packard recently began trading as two separate companies, HP Inc. (HPQ) and Hewlett Packard Enterprise (HPE). Yahoo (YHOO) also is tussling with activists over a potential major spin-off.

"The implications of this deal are petty positive for the activist community," said Emilie Feldman, an assistant professor of management at the University of Pennsylvania's Wharton School of Management, in an interview. "It's a watershed moment."

Shares of Dow and DuPont surged by more than 11 percent in Wednesday trading on the merger/spin-off reports, indicating that Wall Street was pleased that the companies, which have a combined value of $120 billion, were considering a "merger of equals." Critics, though, argue that the deal seeks short-term gains at the expense of long-term growth.

"I don't think it's a good thing at all," said Charles Kane, senior Lecturer in International Finance and Entrepreneurial Studies at MIT Sloan School of Management. Kane has served on 10 public company boards, four of which have been targeted by activists.

"You can take companies that are hundreds of years old, as these two companies are, and you can slice-and-dice an R&D budget to get near-term earnings easily," he said. "You mortgage away the future. The short-term gains are what the activists are after."

Jeffrey Sonnenfeld, a senior associate dean at the Yale School of Management, posits that the companies would be better off remaining independent.

"They each enjoyed tremendous prospects," he wrote in an email to CBS MoneyWatch. "These mergers create enormous uncertainty, risk, and confusion."

Neither Loeb's Third Point nor Peltz's Trian, which has also battled PepsiCo (PEP) among others, responded to requests for comment for this story.

Loeb, who has also tangled with Sony (SNE), Yahoo and Sotheby's, dropped his proxy fight with Dow last year after the Midland, Michigan-based company added two members to its board that Loeb backed. Earlier this year, DuPont defeated a vote initiated by Peltz in which he had sought seats on the Wilmington, Delaware, company's board. CEO Ellen Kullman, who had battled Peltz for two years, announced her retirement a few months later. The company said her move was unrelated to the proxy fight, in which her management was subject to heated criticism.

A Dow-DuPont deal also has its backers.

Research by the Wharton School's Feldman indicates that divestitures create both short- and long-term value for both the seller and buyer. She also argues that deals like the one being discussed for Dow and DuPont would result in better-managed companies that are more focused.

That argument resonates with money managers such as Timothy Ghriskey, who helps manage $1.5 billion for Solaris Capital Management, including shares of Dow and DuPont. That three-way split "creates three more focused companies," he said, "where valuations can properly reflect the value of the businesses in a less complicated way."