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DuPont to spin off performance chemicals

3:51 PM MDT | October 24, 2013 | Lindsay Frost

DuPont announced today that it will divest its $7-billion performance chemicals segment through a tax-free spin-off to shareholders. DuPont announced in late July that it was evaluating a sale or spin off of the $7-billion/year unit as part of its transformation to a “higher growth, less cyclical company.” The business includes titanium dioxide (TiO2), fluoroproducts, and industrial and specialty chemicals. The transaction is expected to be completed in about 18 months subject to a favorable ruling by US tax authorities, the company says.

“This separation will advance the transformation of DuPont and result in two strong, highly competitive companies,” says DuPont chair and CEO Ellen Kullman. The company sold its automotive coatings business to Carlyle Group earlier this year for $5.1 billion. “DuPont will have the optimum portfolio and will benefit from more consistent earnings growth and lower volatility, enhancing our ability to deliver more sustained growth and invest in future opportunities. Performance chemicals will emerge as a top global industrial chemicals company with industry leading products and strong cash flow.” 

DuPont CFO Nicholas Fanandakis says the decision to separate was driven by the opportunity to align the strategic focus and capital structure of the company and not valuation concerns. “We are covered by 23 sell-side analysts and not one of them says the sum of parts here is greater than the whole,” Fanandakis says. “The [analysis] does not suggest that there is a current conglomerate discount.”
The separation will leave DuPont focused on science-driven growth and the performance chemicals spin off fully focused on cash generation, he adds. “DuPont will continue as a high-growth science-driven company delivering shareholder value through revenue and earnings growth,” Fanandakis says. “Performance chemicals will be a strong global company that will deliver value from cash generation.”
DuPont says it will maintain a target A/A2 credit rating with the performance chemicals targeting a “low investment-grade rating.” Financial obligations will “be apportioned between the two companies in line with credit rating objectives,” DuPont says. The company says it expects both companies to pay dividends that equal, in total, DuPont’s dividend at the time of separation.

The performance chemicals business posted 2012 sales of $7.2 billion and operating earnings of $1.8 billion. That would have ranked it as the 59th largest global chemical maker in CW’s 2012 Billion Dollar Club ranking.  DuPont expects to announce a management team for the spin off by early 2014. 

DuPont, excluding performance chemicals, had 2012 sales of $28 billion and segment operating earnings of $4.5 billion. DuPont would rank 11th, down from 8th in the 2012 Billion Dollar Club ranking excluding performance chemicals. DuPont was the largest global chemical maker as recently as 2000.

 Evercore and Goldman Sachs are strategic advisors on the separation. 

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