DuPont Exploring Options for Teflon, Titanium Pigment
Jul 23, 2013 3:23 PM CT
DuPont Co. (DD) is considering a spinoff or sale of its performance chemicals unit, which makes titanium dioxide pigment and Teflon coatings, to focus on less cyclical products and boost shareholder returns.
DuPont, the biggest U.S. chemical maker by market value, may pursue different paths for each business in the segment, which had sales of $7.2 billion last year, the Wilmington, Delaware-based company said today in a statement. The unit makes white pigment for paints, cyanide, Freon refrigerants and Teflon coating for nonstick pans, among other products.
“The attractive financial strength and cash-generating capabilities of these businesses must be continuously weighed against their higher volatility, cyclicality and lower growth profile,” Chairman and Chief Executive Officer Ellen Kullman said on a conference call.
Under Kullman’s leadership, DuPont has continued its shift away from traditional commodity chemical products toward higher-margin businesses that capitalize on meeting global demand for food, energy and security. The company acquired Danish food ingredients and enzyme maker Danisco A/S in 2011 for about 33.4 billion kroner ($5.9 billion). DuPont sold its auto paint unit this year for $4.9 billion.
Volatile earnings from performance chemicals prevent DuPont from realizing the higher valuation inherent in more stable, growing businesses such as agriculture, said Matt Arnold, a St. Louis-based analyst at Edward Jones who has a buy rating on the shares.
“It makes sense to at least explore a sale and see what kind of valuation it might fetch,” he said in an interview.
DuPont fell 0.1 percent to $57.12 at in New York. The shares have increased 27 percent this year.
On July 17, the stock jumped 5.3 percent, the most in more than a year, after the New York Times’s Andrew Ross Sorkin told a CNBC investing conference that activist investor Nelson Peltz had amassed a “very big” stake in the company.
Peltz wasn’t the impetus for DuPont disclosing its plan for performance chemicals and Kullman hasn’t spoken to him, the DuPont CEO said in a phone interview today.
DuPont had already been evaluating future acquisitions and sales since completing the auto-paint sale in February and executives are fielding “a lot of questions” on how performance chemicals fits with DuPont, she said.
“Where does the greatest shareholder value get created?” Kullman said in the interview. “We have to put the question to bed.”
Performance chemicals has an estimated enterprise value of $10.1 billion, analysts at Bank of America-Merrill Lynch said in a July 17 note.
The segment’s second-quarter operating profit fell 56 percent because of lower prices for refrigerants, fluorpolymers and titanium dioxide, a white pigment used in paints and plastics. Titanium dioxide demand has begun to recover, rising 12 percent from a year earlier, the company said.
The titanium dioxide industry is going through a period of upheaval. Princeton, New Jersey-based Rockwood Holdings Inc. (ROC) plans to sell or spin off its unit that makes the commodity while Stamford, Connecticut-based Tronox Ltd. (TROX) said in February it was interested in adding to its titanium dioxide assets. Huntsman Corp., another U.S. producer, has said it wants to participate in the industry’s consolidation.
DuPont’s second-quarter earnings fell 12 percent to $1.03 billion, or $1.11 a share, from $1.17 billion, or $1.23, a year earlier. Excluding one-time items, the results beat by 1 cent the $1.27 average of 19 analysts’ estimates compiled by Bloomberg. Sales fell to $9.84 billion from $9.92 billion.
Operating profit will be about 40 cents a share in the third quarter and 60 cents in the fourth quarter, DuPont said. That compares with the 51-cent average of estimates for third quarter and 44 cents for the fourth.
DuPont, founded in 1802 to make gunpowder, produces thousands of products from genetically modified seeds to Kevlar anti-ballistic fiber.
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