DuPont to spin off performance chemicals unit
25 October 2013
US chemical giant DuPont yesterday said that it would spin off its performance chemicals unit into a new publicly-traded company, heeding investors call to divest the volatile business that affects the company's annual revenue and profit.
The performance chemicals unit, which includes the titanium technologies and chemicals & fluoroproducts businesses, will be separated through a tax-free spin-off, and upon completion of the separation in about 18 months, the new company will be 100-per cent owned by DuPont shareholders.
The Delaware-based company said that the new company will have world leading businesses in titanium technologies and chemicals & fluoroproducts, solid fundamentals, strong cash flow generation, and well established positions in attractive markets.
The performance chemicals unit generated about $7 billion in revenues last year, but sales have been fluctuating widely for the past several years, affecting the company's overall sales, profit and stock price.
Trian Fund Management, headed by activist investor Nelson Peltz, which holds 2.2 per cent in DuPont, and other investors have questioned the future of the performance chemicals business and have said that the company's stock was undervalued compared to its rivals Monsanto and BASF.
DuPont has been mulling a sale or spinoff of its performance chemicals unit for some time. It had announced in July that it would explore strategic alternatives for the unit as part of an ongoing portfolio review to determine the optimal mix of businesses for maximising shareholder value. (See: DuPont may sell or spin off performance chemicals unit)
Spinning off the unit will be its latest step in transforming the company after it sold its performance coatings business last year to Carlyle Group for $4.9 billion.
DuPont, the world's second largest chemical company by market capitalisation behind BASF, said that each company will have a tailored capital structure that best supports its value creation plan, including capital allocation and credit profile.
DuPont expects to enable both companies to pay dividends that in total equal DuPont's dividend at the time of separation. The company anticipates fourth quarter separation costs of $.01-.02 per share, which were not included in its third quarter 2013 earnings news release.
''Following a thorough strategic review process over the last year, the spin-off of Performance Chemicals is clearly the best option to deliver enhanced value for our shareholders. This separation will advance the transformation of DuPont and result in two strong, highly competitive companies,'' said DuPont chairman and CEO, Ellen Kullman.
''After separation, 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.''