DuPont To Exit Paints Business
DuPont plans to exit its once-lucrative paint pigments business to focus on a thriving agricultural unit better equipped to shield the biggest U.S. chemicals maker from market volatility.
DuPont's shares rose as much as 6% on Tuesday to their highest in more than 13 years after the company said it would consider selling or spinning off its performance chemicals unit, which contributed a fifth of its sales last year.
The stock gave back those early gains to close down 5 cents to $57.12.
Investment bankers said that the paint pigments business is likely to attract interest from private equity firms that have been active bidders on chemicals businesses that have come to market over the last few years.
They said that the business could be worth 6 or 7 times earnings before interest, taxes, depreciation and amortization. Using last year's pre-tax operating income of $1.62 billion, the unit could be worth more than $10 billion.
DuPont declined to comment on specific options.
"It's way too soon to go down a path of who might be a potential buyer," Chief Financial Officer Nick Fanandakis said in an interview with Reuters.
DuPont is joining an industry-wide shift among chemical makers, including rival Dow Chemical, into production of seeds and pesticides, which have proven to be less exposed to market ebbs and flows than the popular pigment titanium dioxide.
Agricultural demand is driven by North American farmers in the first half of the year and South American farmers in the second. The expanding global population, particularly in Asia, is also driving demand for fertilizers, seeds and pesticides.
Chief Executive Ellen Kullman said DuPont's earnings would be "significantly better" in the second half of 2013 than in the same period last year due to agricultural growth in the Americas - reinforcing the planned exit from performance chemicals.
Demand for titanium dioxide has long been susceptible to swings in the global economy.
Global titanium dioxide prices went into tailspin last year after the world's biggest producers, including DuPont, Saudi Arabia's Cristal Global, Tronox and Huntsman, restarted plants idled during the recession.
As prices declined, revenue within DuPont's performance chemicals unit fell 8% in 2012. Kullman said the company had been weighing the cash generation of the businesses against their cyclical nature and "lower growth profile."
"There is nothing science can do to arrest the volatility or the cyclicality of these businesses," Kullman said on a conference call.
Analysts said the hand of a new investor might also be behind the move. Nelson Peltz, a force behind some of the global food industry's biggest deals, had amassed a "big stake" in DuPont through his Trian Fund Management, CNBC said last week.
Trian declined to comment on Tuesday.
Some investors have blamed the performance chemicals business for weighing on DuPont's shares, which trade at a discount to those of Monsanto, a key rival in the agriculture business.
"I don't think we would have seen this move about the performance chemicals business in this quarterly release without revelations about activist investors getting involved," said Stephen Hoedt, senior equity research analyst with Key Private Bank.
Kullman, in an interview with CNBC on Tuesday, said she had not spoken to Peltz. She said she had heard "rumors" about his acquisition of a stake.
DuPont's performance chemicals unit, of which paints pigments are a big part, generated total sales of $7.2 billion in 2012.
Huntsman, which is also exploring options for its titanium dioxide business, could be looking to buy Rockwood's pigments unit, Reuters reported this month.
Wilmington, Delaware-based DuPont, a 211-year-old company, sold its car paint unit for $5 billion last year and bought nutritional supplements maker Danisco for $6 billion in 2011.
Sales of pesticides and other agricultural products helped DuPont's quarterly profit scrape past analysts' estimates, as paint pigments once again lagged.
Net income fell to $1.03 billion, or $1.11 per share, in the second quarter, compared with $1.17 billion, or $1.23 per share, in the year-ago period.
Excluding pension charges and other one-time items, the company posted profit of $1.28 per share. By that measure, analysts expected earnings of $1.27 per share, according to Thomson Reuters I/B/E/S.
