Web Date: July 24, 2013
DuPont May Sell Chemical Units
Citing volatility and technical maturity, DuPont says it will divest a big portion of its traditional chemical business, including its storied Teflon fluoroproducts brand and its industry-leading titanium dioxide pigment unit.
The company is exploring “strategic options” for the business, a process that could mean a sale or a spin-off. The division, known as performance chemicals, includes well-known DuPont brands such as Teflon nonstick coatings, Nafion ion-exchange membranes, and Suva refrigerants. It also makes industrial chemicals such as aniline, sulfuric acid, and glycolic acid. The division earned $1.8 billion in operating income on $7.2 billion in sales last year.
An exit would mark the second large divestiture of a long-held DuPont business in less than a year. In January, the company completed the $4.9 billion sale of its automotive coatings unit to the private equity firm Carlyle Group. In 2011, DuPont bought the industrial enzymes and food ingredients maker Danisco for $6.6 billion.
In a conference call this week, DuPont CEO Ellen J. Kullman told stock analysts that the firm will focus on agricultural chemicals, seeds, nutrition, biobased chemicals, and advanced materials. In these fields, the company has a “unique ability to work beyond the boundaries of a single discipline and find novel, innovative solutions at the intersection,” she said.
The businesses that DuPont wants to sell fall outside such a strategy. “We have limited ability to create new growth opportunities with these businesses by integrating our science, customers, and products,” Kullman said.
Furthermore, although the chemicals involved have attractive market positions and generate strong cash flows, they are the most cyclical businesses in the DuPont portfolio, Kullman noted.
A divestiture wouldn’t be a wholesale exit from industrial chemicals for DuPont. The company will keep engineering polymers and electronic chemicals plus well-known brands such as Kevlar, Corian, and Tyvek.
Finding a buyer for the performance chemicals business could be a challenge, UBS stock analyst John Roberts told clients in a research note. Rockwood Holdings received no bidders when it recently put its titanium dioxide business up for sale.
And the high market share of some DuPont businesses, Roberts said, will make it tough to strike a deal with a competitor. DuPont might have an easier time finding a private equity buyer, as it did with the paint business.
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