By Ernest Scheyder
Oct 24 (Reuters) - DuPont said on Thursday it willspin off its titanium dioxide unit into a separately tradedpublic company within 18 months, yielding to intense pressurefrom Wall Street to divest the volatile business.
Spinning off the performance chemicals business, which alsosells refrigerants, would allow DuPont to focus more onspecialty materials and agriculture, two growth areas.
The unit makes titanium dioxide, a popular pigment found inproducts ranging from car paint to sunscreen. Prices for theproduct, which alone accounted more than a fifth of thecompany's 2012 revenue, have been on a roller-coaster for thepast several years, wildly affecting DuPont's profit and stockprice.
"Investors love the business on the way up," DuPont ChiefExecutive Ellen Kullman said in a December 2012 interview withReuters about the unit. "But investors don't like the turns.Turns are hard to predict in the Ti02 market."
Kullman, who ran the titanium dioxide business in the 1990s,has previously championed DuPont's decision to increase capacityby building a new plant due to start production by 2014.
Yet investors have agitated for months about DuPont's lowstock price compared with those of rivals Monsanto andBASF. While DuPont is the second-largest seed makerafter Monsanto, its stock trades at a large discount to itsrival.
On several recent quarterly earnings conference calls,DuPont executives have faced numerous questions from investorsand analysts about the future of the performance chemicalsbusiness within DuPont.
As early as last year, top Wall Street analysts trackingDuPont, including Deutsche Bank's David Begleiter and BGC Partners' Mark Gulley, called for the company to divest thetitanium dioxide business.
Earlier this summer Trian Fund Management, headed by NelsonPeltz, disclosed a stake of 5.78 million shares in DuPont,saying the stock was undervalued and had potential to grow.Peltz did not disclose publicly how he sought to increase valueat DuPont, though many Wall Street analysts speculated he soughta breakup of the company or spinoff of major units.
DuPont said it has been exploring the divestment of the unitfor some time. "We've been exploring strategic options forPerformance Chemicals for more than a year. In fact, thetransformation of DuPont began in 2009 under the new managementteam" when Ellen Kullman became CEO, said Nick Fanandakis,DuPont's chief financial officer.
DuPont said its existing shareholders will own 100 percentof the performance chemicals business after the spinoff. Thespinoff would likely reduce fourth-quarter earnings by a pennyto 2 cents per share.
Executives have not been chosen for the new unit, thoughexisting unit leaders, including Executive Vice President MarkVergnano, are likely to remain, Fanandakis said in an interview.
Kullman will remain DuPont's CEO and no job cuts are plannedfor the unit's 7,500 workers, he said. The new company willassume a "commensurate" share of DuPont's current debt load andexpects to have a low investment-grade credit rating, he said.
The spinoff will take 18 months to review unit financials,audit them, and separate other business functions, Fanandakissaid.
"There's a lot of things that have to be done," he said.
The combined quarterly dividend payments of both DuPont andthe spun-off company will equal the currently quarterly payoutof 45 cents, DuPont said in a statement.
"It's not cutting (the dividend), it's reapportioning,"Fanandakis said.
DuPont expects the new business to have annual sales ofroughly $7.2 billion after the deal closes and its remainingbusinesses to have annual sales of $28 billion.
Shares of DuPont rose 2.6 percent to $63 in after-hourstrading. The stock has gained 37 percent so far this year.
- Basic Materials Industry
- Investment & Company Information
- titanium dioxide