DuPont To Split In Two

Three months after revealing that it was exploring options for its performance chemicals business, DuPont announced that it will turn the business into a new company by spinning it off to shareholders.

The as-yet unnamed business will operate as an independent, publicly traded company with 7,000 employees when the separation is completed by about April 2015. It will make products such as Suva refrigerants, Teflon nonstick coatings, and titanium dioxide paint pigments.

In July, DuPont had said it would exit the business, which had $7.2 billion in revenues and $1.8 billion in earnings last year, to focus on faster growing and less cyclical operations.

“DuPont’s mission will continue to be science-driven growth. DuPont’s performance chemicals mission will be cash generation,” says DuPont CEO Ellen Kullman. “After separation, DuPont will have the optimum portfolio and will benefit from more consistent earnings growth and lower volatility.”

The separation will make the performance chemicals business the 11th largest U.S. chemical maker based on C&EN’s rankings of 2012 chemical company sales (C&EN, May 13, page 26). After the spin-off DuPont will have about $28 billion in sales and will remain the number three U.S. chemical maker after Dow Chemical and ExxonMobil.

Analysts have speculated that activist investor Nelson Peltz, whose Trian Fund recently took a stake in DuPont, pushed DuPont to toss the performance chemicals business to focus on its faster growing seeds, industrial biotechnology, performance materials, and protective materials businesses. However, Nick Fanandakis, DuPont’s chief financial officer, says the company has been evaluating an exit from performance chemicals for the past year.

A decision to spin off the business came after the company’s board of directors met on Wednesday and Thursday, Fanandakis says. The meeting followed the firm’s third-quarter earnings report on Tuesday, which showed a 38% decline in performance chemicals earnings to $254 million compared with a year ago.

According to Fanandakis, the final form of any spin-off is still to be determined. Depending on market conditions, DuPont might offer 20% of the shares in an initial public offering, with the remainder going to DuPont shareholders.

Both companies will pay a dividend equal to what DuPont pays shareholders today. However, the new firm will take on a significant amount of debt “commensurate with a low investment-grade rating,” whereas DuPont will maintain a high investment-grade rating, Fanandakis adds.

Other companies are also exiting slow-growth businesses in favor of faster-growing operations. Earlier this month, Dow agreed to sell its polypropylene catalysts unit to W.R. Grace for $500 million. Clariant completed the sale of its textile chemicals, paper specialties, and emulsions business to private equity firm SK Capital Partners for $550 million. Clariant also sold its detergents and intermediates group to International Chemical Investors Group for $64 million.