DuPont Close To Another Transformational Milestone With Chemours Spin Off

-14.46%
Downside
73.52
Market
62.89
Trefis
DD: DuPont logo
DD
DuPont

DuPont (NYSE:DD), an American chemical company, was founded in 1802 as a gunpowder mill. In the 20th century, the company underwent a major reorganization as it turned into a diversified chemical company, with the successful development of many polymers such as Vespel, Neoprene, Nylon, Teflon, Kevlar, Nomex, and Tyvek. However, since 1990, DuPont has completed some sweeping restructuring transactions, including the divestment of its energy business in 1999, that have helped it transform into a company that is more focused on agricultural products, health and nutrition, and industrial biosciences businesses, which would allow it to leverage the close integration of these businesses, based on innovations in the chemicals and biotechnology fields. [1] Some of the key portfolio actions taken by the company in this direction since the start of this decade include:

  • Acquisition of the food, enzymes, and bio-products company, Danisco in 2011
  • Sale of the performance coatings business in 2012
  • Acquisition of the international soy ingredients joint venture, Solae, in 2012
  • Acquisition of the African seed giant, Pannar, in 2013

This year, DuPont is set to take another big step in this direction. The company’s board of directors recently authorized the spin off of its Performance Chemicals division. [2] DuPont first announced its decision to spin off the division in the second half of 2013. The decision was primarily driven by its objective to reduce the cyclical volatility, which is inherent to the performance chemicals business, in its broader portfolio. The Performance Chemicals division primarily deals in titanium dioxide (TiO2) and fluorochemicals, and contributes almost 15% to DuPont’s total value by our estimates. It has been under-performing the company’s overall portfolio for the last several quarters. This has been primarily due to lower chemical prices, which continued to weigh on its consolidated operating results during the first quarter of this year, as well. Sales from the division were down 14% year-on-year, while operating earnings declined more than 37% y-o-y in 1Q 2015 due to thinner margins. According to our estimates, DuPont’s Performance Chemicals adjusted EBITDA margin has shrunk by more than 12 percentage points since 2011, and stood at just around 16.3% last year, well below the company-wide average of 20%. [3]

We believe, the spinoff of TiO2 and other performance chemicals businesses will not only allow DuPont to focus more on science-based integration of its higher-margin Agricultural, Health and Nutrition, and Industrial Biosciences divisions, but will also reduce the level of operating risk associated with the company’s consolidated operations. [4]

Relevant Articles
  1. Should You Buy DuPont Stock At $84?
  2. Can DuPont Stock Rebound After A 13% Drop In 10 Days?
  3. 35% Downside For DuPont Stock?
  4. After A 25% Fall Is PPG Industries A Better Buy Than DuPont?
  5. DuPont Down 40% Over The Last One Month, Will It Continue To Underperform?
  6. What’s DuPont’s Fair Stock Price Estimate Based On Expected 2019 Earnings?

The spin off of DuPont’s Performance Chemicals division will lead to the creation of a new public entity called The Chemours Company, (NYSE:CC), on July 1. The new public entity’s common stock started “when issued” trading on the New York Stock Exchange under the ticker symbol “CC WI” on June 19 and will start trading in the “regular way” on July 1. Securities trade on a “when issued” basis when they have been announced, but not yet issued. The transactions that take place during this period are settled only after the security has been issued. Through the spin-off, DuPont shareholders will receive one share of the Chemours Company’s common stock for every five shares of DuPont’s common stock held as of 5.00 P.M. EDT on June 23, 2015, the record date for this transaction. The distribution of shares is scheduled to be completed on July 1. We currently have a $64 per share price estimate for DuPont and will soon modify our valuation model to reflect the spin off. [5]

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. DuPont History, dupont.com []
  2. DuPont’s Board Of Directors Declares Spin-Off Dividend Of The Chemours Company Shares, dupont.com []
  3. DuPont First Quarter 2015 Earnings Call Presentation, dupont.com []
  4. Performance Chemicals Segment Spin-off, dupont.com []
  5. DuPont Announces “When-Issued” Trading Of The Chemours Company Common Stock In Connection With Planned Spin-Off, dupont.com []