DuPont stock rises on spin-off plan

Posted: October 27, 2013

Shares of DuPont Co. closed Friday at $61.90 - their highest level since 1999 - after Thursday night's announcement that the Wilmington chemical giant plans to spin off its profitable but volatile performance-chemicals business.

DuPont officials said that the spin-off would occur during the next 18 months and that all the equity in the new public company would be owned by DuPont shareholders.

The new entity will include the factories involved in producing fluorochemicals, which are used in air conditioners and refrigerators; and titanium-dioxide, a base for white paint known in the industry by its chemical symbol, TiO2. One such plant is in Edge Moor, Del.

The new company will have sales of around $7 billion a year, vs. $28 billion for what's left of DuPont.

"This action gives us an opportunity to advance our strategy to transition DuPont to a higher-growth, higher-value company," chief executive officer Ellen Kullman said in a conference call Thursday evening, according to the Associated Press.

DuPont had been under pressure by activist investors, including Nelson Peltz, to separate commodity businesses such as paint from higher-growth businesses like biotech, pesticides, and photovoltaics. Speculation about a sale or spin-off has boosted share prices during the last year.

But in an interview on Bloomberg TV Friday morning, Kullman said that she hadn't spoken to Peltz about it and that the performance chemicals split had been in the works for more than a year.

Citigroup projected DuPont shares would rise to $70 now that it has "fewer balls to juggle," according to a report by analyst P.J. Juvekar. He expects a spin-off like DuPont's 1999 divestment of Conoco, the oil company. Kullman said the company was still looking for the best way to separate. Juvekar said that DuPont's remaining businesses in some cases had nothing to do with one another and that other splits were possible.

But in separate reports compiled by Bloomberg, Jeffries analyst Laurence Alexander predicted share prices wouldn't rise beyond the current level in the foreseeable future and the performance-chemical separation would make a rumored pesticides spin-off less likely.

"Activism is working," Mark Gulley, a New York analyst at BGC Partners LP, said in a note, according to Bloomberg. "This is indeed a value-enhancing move."

Kullman has noted the Ti02 business, where DuPont has a world-leading market share, is profitable but demand is volatile. She has not yet named a management team for the new company.

DuPont has bought and sold large business units for much of its long history; a number of former DuPont divisions still have headquarters in the Wilmington area or in metro Philadelphia.


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