DuPont spinning off struggling performance chemicals unit to shareholders
Oct 25, 2013 / 8:08 am
DOVER, Del. - The DuPont Co. said Thursday that it is spinning off its struggling performance chemicals unit into a separate shareholder-owned public entity.
The announcement came two days after Chairwoman and CEO Ellen Kullman said DuPont was exploring alternatives for the performance chemicals unit, a commodities business that generates significant cash but also is subject to highly volatile markets that are vulnerable to swings in economic cycles.
"This action gives us an opportunity to advance our strategy to transition DuPont to a higher-growth, higher-value company," Kullman said in a conference call Thursday evening.
The performance chemicals unit, whose products include titanium dioxide, a widely used industrial whitening pigment, generated revenues of about $7 billion and operating earnings of $1.8 billion last year.
In announcing its third-quarter earnings Tuesday, DuPont said volume for the performance chemicals unit increased 12 per cent. But that was not enough to offset steep price declines for titanium dioxide, refrigerants and fluoropolymers, along with higher raw material inventory costs. The unit's operating earnings fell 38 per cent to $254 million.
Kullman said that, over the past year, DuPont executives have weighed what to do with the performance chemicals unit, balancing its cash generation against its cyclicality and volatility.
"We have concluded that separation, specifically by way of a tax-free spinoff, will create the most value for our shareholders," she said.
DuPont's announcement came after the close of regular-session trading on the New York Stock Exchange, which saw the company's shares rise almost 2 per cent to $61.38. In after-hours trading, Wilmington-based DuPont's stock was up another 3 per cent at $63.24.
DuPont management has said it hopes to complete the spinoff within 18 months, with all the equity in the new public entity being owned by DuPont shareholders.
Officials said the spinoff will allow investors a choice between the cash potential of the performance chemicals business and the growth potential of the parent company.
"DuPont will benefit from more stable, predictable earnings and cash flow," said Chief Financial Officer Nick Fanandakis.
The spinoff also will allow DuPont to intensify its focus on its more science-driven business segments: agriculture and nutrition, industrial biosciences and advanced materials.
At the same time, DuPont officials says the performance chemicals unit is well positioned to be a highly competitive stand-alone company
"This is going to be a world-class global chemical company," Fanandakis said.
The performance chemicals spinoff is the latest in series of strategic moves by DuPont in recent years, including the acquisition of the enzyme and specialty food ingredients businesses of Danish company Danisco, and the divestiture of DuPont's performance coatings segment earlier this year.
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