DuPont de Nemours Inc. today announced plans to split into three separate, publicly traded companies. The electronic materials and water business will become independent companies, with the remainder of the company to comprise New DuPont. The splits will be complete within 18 to 24 months, and do not require shareholder approval.
The electronics and water businesses have pure play peers in their respective markets that command higher earnings multiples than DuPont currently does.
“Each company will have greater flexibility to pursue their own focused growth strategies, including portfolio enhancing M&A,” said DuPont Chairman and CEO Ed Breen. The three entities will also appeal to different shareholder bases and “enable tailored capital allocation strategies,” DuPont said.
Different investor bases for comparable entities in water and electronics provide evidence for the idea that DuPont is undervalued as currently constituted, according to Breen. “When you look at peers in water and electronics, there is not a lot of overlap in the shareholder base [with DuPont],” Breen said during an investor call this morning. “It’s a different type of investor that wants to invest in those businesses.”
Shares in DuPont traded up slightly on the news, rising by 0.62% in early trading on May 23, to $79.04/share.
Electronics and water will float
The future New DuPont businesses generated about $6.6 billion in sales and operating EBITDA margin of 24% in 2023, divided between healthcare, mobility, and safety and protection. The safety and protection business — about half of future DuPont’s sales — includes construction materials and brands such as Tyvek and Kevlar. The rest of the company’s sales will be about equally divided between mobility and healthcare, with major applications in electric vehicle (EV) batteries, structural adhesives, biopharma and medical devices, respectively.
Comparable companies to the new DuPont will include ITT Inc. and Dover Corporation, DuPont CFO Lori Koch said on an investor call this morning. ITT and Dover trade at a total enterprise value to last twelve months (TEV/LTM) EBITDA multiples of 16.6 and 15.8, respectively, according to S&P Capital IQ. DuPont’s current TEV/LTM EBITDA multiple is 13.0.
The electronics business generated about $4.0 billion in sales and operating EBITDA margin of 29% in 2023, with about 60% in semiconductor materials and 40% in interconnect materials. Key end markets include AI chips, digital displays, printed circuit boards and consumer electronics. DuPont cited Entegris as a “selected peer,” which currently trades at a TEV/LTM EBITDA multiple of 26.3.
The water business generated about $1.5 billion in sales and operating EBITDA of 24% in 2023, with products in reverse osmosis, ion exchange and ultrafiltration. Markets include industrial water treatment, municipal water treatment, life sciences, and emerging technologies such as direct lithium extraction. The company identified Xylem, which trades at a TEV/LTM EBITDA multiple of 23.4, and Veralto, which trades at a TEV/LTM EBITDA multiple of 20.7, as peers.
The water business separation could be completed sooner than the electronics split because the business is significantly smaller, according to Breen. “If we can get [water] done a little earlier, we will just spin it out at that point,” he said.
Improving benchmark valuations for each of DuPont’s businesses is a key justification for the move, according to DuPont executives. This is especially the case for M&A in electronics and water, where “the valuation of current DuPont can make it challenging to do deals,” Koch said.
DuPont splits
According to Chemical Week’s Billion-Dollar Club, an annual ranking of the industry’s largest companies by publicly disclosed revenues, DuPont was the 39th-largest chemical maker globally in 2022, down from number 29 in 2021 and number 13 in 2019. The company had shed notable assets such as its mobility and materials, and nutrition and biosciences, businesses in recent years even prior to today’s announcement. It was routinely at or near the top through the 1990s and last held the top spot in 2000.
Parts of the current DuPont also joined the company with the DowDuPont merger-then-split transaction in 2019, which was also a three-way separation into Corteva, Dow and DuPont.
Meanwhile, per- and polyfluoroalkyl substances (PFAS) liabilities, which have bedeviled DuPont as well as spinoffs Corteva and Chemours, “will be allocated among electronics, water and new DuPont on a pro rata basis,” the company said. Indemnity obligations to Corteva will be allocated in the same manner, DuPont said.
DuPont is prevented from putitng PFAS liabilities into one particular entity via a legal agreement with The Chemours Co. and Corteva Inc. “We can’t carve out and keep PFAS liabilities away from particular piece,” Breen said on this morning’s investor call. “But we’ve made good progress settling PFAS claims and expect more of that in next 18-24 months…it will keep getting diminished over time.”
Koch named next DuPont CEO
DuPont also announced today that Lori Koch, the company’s CFO, will become CEO and director effective June 1. She will succeed Ed Breen, who becomes full-time executive chairman on that date. Antonella Franzen, currently CFO of DuPont’s water and protection segment, has additionally been named CFO of the entire company effective June 1.
Koch and Franzen will continue as CEO and CFO, respectively, of the new DuPont when the splits are complete. Management of the stand-alone water and electronics businesses has not been announced.
Breen said his role as executive chairman will be focused mostly on the separation, including hiring boards and management teams for the water and electronics businesses.
DuPont has reaffirmed its full-year financial guidance, calling for sales of $12.1 billion to $12.4 billion, and adjusted earnings of $3.45-$3.75 per share.
by Vincent Valk
Source: chemweek.com
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