October 25, 2013 at 12:30 pm #1586
UPDATE 2-Bowing to Wall St, DuPont to spin off titanium dioxide unit
October 24, 2013 6:42 PM ET
By Ernest Scheyder
Oct 24 (Reuters) – DuPont said on Thursday it will spin off its titanium dioxide unit into a separately traded public company within 18 months, yielding to intense pressure from Wall Street to divest the volatile business.
Spinning off the performance chemicals business, which also sells refrigerants, would allow DuPont to focus more on specialty materials and agriculture, two growth areas.
The unit makes titanium dioxide, a popular pigment found in products ranging from car paint to sunscreen. Prices for the product, which alone accounted more than a fifth of the company’s 2012 revenue, have been on a roller-coaster for the past several years, wildly affecting DuPont’s profit and stock price.
“Investors love the business on the way up,” DuPont Chief Executive Ellen Kullman said in a December 2012 interview with Reuters about the unit. “But investors don’t like the turns. Turns are hard to predict in the Ti02 market.”
Kullman, who ran the titanium dioxide business in the 1990s, has previously championed DuPont’s decision to increase capacity by building a new plant due to start production by 2014.
Yet investors have agitated for months about DuPont’s low stock price compared with those of rivals Monsanto and BASF. While DuPont is the second-largest seed maker after Monsanto, its stock trades at a large discount to its rival.
On several recent quarterly earnings conference calls, DuPont executives have faced numerous questions from investors and analysts about the future of the performance chemicals business within DuPont.
As early as last year, top Wall Street analysts tracking DuPont, including Deutsche Bank’s David Begleiter and BGC Partners’ Mark Gulley, called for the company to divest the titanium dioxide business.
Earlier this summer Trian Fund Management, headed by Nelson Peltz, disclosed a stake of 5.78 million shares in DuPont, saying the stock was undervalued and had potential to grow. Peltz did not disclose publicly how he sought to increase value at DuPont, though many Wall Street analysts speculated he sought a breakup of the company or spinoff of major units.
DuPont said it has been exploring the divestment of the unit for some time. “We’ve been exploring strategic options for Performance Chemicals for more than a year. In fact, the transformation of DuPont began in 2009 under the new management team” when Ellen Kullman became CEO, said Nick Fanandakis, DuPont’s chief financial officer.
DuPont said its existing shareholders will own 100 percent of the performance chemicals business after the spinoff. The spinoff would likely reduce fourth-quarter earnings by a penny to 2 cents per share.
Executives have not been chosen for the new unit, though existing unit leaders, including Executive Vice President Mark Vergnano, are likely to remain, Fanandakis said in an interview.
Kullman will remain DuPont’s CEO and no job cuts are planned for the unit’s 7,500 workers, he said. The new company will assume a “commensurate” share of DuPont’s current debt load and expects to have a low investment-grade credit rating, he said.
The spinoff will take 18 months to review unit financials, audit them, and separate other business functions, Fanandakis said.
“There’s a lot of things that have to be done,” he said.
The combined quarterly dividend payments of both DuPont and the spun-off company will equal the currently quarterly payout of 45 cents, DuPont said in a statement.
“It’s not cutting (the dividend), it’s reapportioning,” Fanandakis said.
DuPont expects the new business to have annual sales of roughly $7.2 billion after the deal closes and its remaining businesses to have annual sales of $28 billion.
Shares of DuPont rose 2.6 percent to $63 in after-hours trading. The stock has gained 37 percent so far this year
October 25, 2013 at 12:31 pm #4413
Here is update on Dupont Proceeding with IPO on its TiO2 Unit. CEO Kullman (ran TiO2 Business Unit 1980’s) fought the good fight & even championed TiO2 capacity expansion against analyst pressures.
But the purchase of $1.1 Billion of Dupont stock (total mkt cap was $54 B) by Activist Investor Nelson Peltz / Trian Mgmt. who began pushing from inside and IPO of Huntsman’s TiO2 Unit in Sept 2013 which was touted as Option for Dupont …… eventually painted a Dupont, trying to Reinvent itself, into a corner and doomed the Company to yield to this stupidity. Unfortunately it is also happening as TiO2 prices & Industry is recovering from bottoming out in 2009-10 recession lows and due Europe & China import demands / production problems is spiking up (which is also typical of investor analysts timing).
I say this because Wallstreet & Investment analysts have one mantra – put everything into Dividends, cut workforce till it bleeds and sell off anything not making growth rate return of +15%. Since mature companies and industries cannot do this except short term if stop R&D and funnel it to dividends, sacrifice Safety & Quality for manpower and stop expansion/maintenance investments for earnings. But leads carving up the company and selling off parts which is their real goals. These guys do to companies what their nature counterparts (Jackals, Hyenas & Vultures) do to herds – single individuals at their weakest point.
Before we delve into the “deja vue” nature of this Dupont move and continued death spiral – we should hook the impact of this to Petcoke industry. The TiO2 product (~5.36 MM mtpy in 2012) is made by Sulfate (~2.46 MM mtpy) and Chloride (~3.2 MM mpty) Process but only Chloride uses Petcoke as raw material.
It takes about 1 metric ton calcined petcoke to make 1 metric ton TiO2 Product. So this means about 1.5-1.8 MM mtpy of Calcined Petcoke demand for Global Calciners or 1/12th their total production.
Now back to Duponts downward Spiral – Dupont had the Huntsman IPO model (which was never good leader to follow) long before when it spun off its Fibers Unit to IPO back in 2002. The new Dupont IPO (a $6 Billion/yr sales or 24% total Dupont sales but was 50% Duponts assets & 18,000 employees) business unit with was called DTI (Dupont Textiles & Interiors) which later became INVISTA Fibers that was bought by Koch Ind. in 2004 for $4.4 Billion. Duponts Fibers unit was big gain for Koch’s KoSa global fibers segment and was big cash-flow loss for Dupont which dropped to 66 place on Fortune 500 list. Dupont lost most of the money from the Spin-off to failed attempt in Pharmacy Industry (no cash flow for drug takes 7-10 yrs before get drug to mkt). I remember emailing news and suggesting TiO2 sector would be next one and that Koch Ind. would be best fit assuming they could recover from swallowing both Dupont’s Fiber group and Global Pacific’s Paper Industry (paper is good TiO2 consumer and Koch already has place Petcoke mkt but would not be same purchase problems as Dupont other TiO2 competitors ).
Dupont was already in cash-flow lean position from spinning off previous other units like Consol Coal and Conoco Oil – both mature industries with high operation cost and low growth and low returns but very high cash flow generation. When Dupont merged with Conoco both were #8 place on Fortune 500 (both before and after their merger) and then Dupont spun off Conoco’s Consol Business Unit and later Conoco & then Fibers unit. Dupont has dropped from largest Chemical Company to #2 and from being #8 to #72 on Fortune 500 – given size TiO2 unit and similar set up to Fibers earnings of $6B look for Dupont to become #100-140 on next Fortune list.
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