DuPont to split into 3

DuPont has reinvented itself many times since Ed Breen took over as CEO in 2015, and now it is doing so again. In what could prove to be a conclusive breakup, the company has unveiled plans to split into three separate firms: one focused on materials closely associated with the storied company in Wilmington, Delaware, and two specializing in electronic materials and water treatment.

“We concluded that operating these businesses as independent companies provides the best path for long-term value creation, and we believe the time to do it is now,” Breen said on a May 23 conference call with analysts.

DuPont expects the split will take place within the next 18–24 months, when DuPont separates the electronic materials and water businesses by distributing stock in the firms to shareholders.

The businesses earmarked for the electronic materials company had $4.0 billion in sales last year. The company will make materials such as chemical-mechanical planarization pads, lithography chemicals, and cleaning agents for semiconductor manufacturing. It will also make materials for interconnects like films and laminates.

The water treatment businesses had $1.5 billion in sales last year. The new company will supply reverse osmosis membranes, ion-exchange resins, and other water treatment products. The business has also been developing technology for up-and-coming separation applications like lithium extraction and hydrogen production.

The third business is being called New DuPont. It is the largest of the three, with $6.6 billion in annual sales based on 2023 results. It will make recognizable DuPont materials such as the aramid fibers Kevlar and Nomex. It will also sell Tyvek film, Styrofoam, and adhesives. Key markets for the company will be safety gear, construction, health care, and vehicle production.

“The company will remain a premier diversified industrial company with a portfolio of iconic brands and solutions powered by deep material science, innovation, and customer-centric application engineering expertise,” DuPont’s chief financial officer, Lori Koch, told analysts on the call.

With news of the split came the announcement that Koch will succeed Breen as CEO of DuPont effective June 1. Breen will stay on as executive chairman and oversee the split. Koch will also lead New DuPont.

The three-way split won’t come as a surprise to many DuPont observers. Before joining DuPont, Breen presided over the breakup of Tyco International. At DuPont, Breen oversaw the temporary merger with Dow to form DowDuPont. That transaction led to the creation of Corteva Agriscience by combining the Dow and DuPont seed and agricultural chemical businesses. Breen sold DuPont’s Nutrition & Biosciences division to International Flavors & Fragrances in 2021 and its Engineering Polymers division to Celanese in 2022.

Analysts long suspected that Breen had a more comprehensive breakup in mind. When the short-lived CEO Marc Doyle was ousted in 2020, Breen took DuPont’s helm again. At the time, Deutsche Bank stock analyst David Begleiter remarked in a note to clients that “with no clear successor following the departure of CEO Marc Doyle, it is more likely, in our view, that Mr. Breen ultimately sells or fully breaks up DuPont.”

About the current split plan, Breen said that “these actions will unlock value given the expected valuation of each stand-alone company relative to market peers. We also believe each future company will benefit from increased flexibility and focus.”

Overshadowing the split are liabilities related to per- and polyfluoroalkyl substances (PFAS), which DuPont once manufactured. DuPont says the liabilities will be distributed among the three firms.

In a note to clients, Jefferies stock analyst Laurence Alexander says the breakup should bring into sharper focus the extent to which these liabilities have been weighing on DuPont. “This process should finally put to rest lingering questions as to how much of a burden to DuPont’s share price is the ‘conglomerate discount’, and how much concerns over longer-term PFAS litigation risk,” he writes.