DOWDUPONT INC. $71(New York symbol DWDP; Manufacturing sector; Shares outstanding: 2.3 billion; Market cap: $163.3 billion; Takeover Target Rating: Lowest; No dividends paid; TSINetwork Rating: Above Average; www.dow-dupont.com) began trading on September 1, 2017, following the merger of Dow Chemical and DuPont.
The combined company now plans to split into three separate publicly traded firms—Agriculture, Specialty products, and Materials—within 18 months.
Former Dow CEO Andrew Liveris, now the executive chairman of DowDuPont, and former DuPont CEO Ed Breen, now CEO of DowDu- Pont, will lead the process.
A number of activist investors hold interests in the company. These include Nelson Peltz’s Trian Partners, Daniel Loeb’s Third Point LLC and Jana Partners LLC. These activists recently reviewed DowDuPont’s plans to split into the three parts and made a number of proposals to change the allocation of assets.
As a result, the company will make some of those alterations in an attempt to avoid a prolonged fight with the investors. That revised plan will see several businesses, with total annual sales of more than $8 billion, moved from the Materials division to the Specialty-products unit. Those businesses include water purification, automotive systems and pharma & food.
As well, DowDuPont will split up the old Dow Corning and distribute its lucrative silicone business among the Materials and Specialty-products operations.
Currently, this business produces silicon-based products for aerospace, automotive and electrical industries. Under the earlier plan, all of its operations were to transfer to the Materials unit.
In general terms, the new Agriculture operations will combine products and expertise from DuPont Pioneer, Du- Pont Crop Protection and Dow AgroSciences. It will be headquartered in Wilmington, Delaware—the home of Du- Pont. This unit will have annual sales of about $14 billion.
The Materials division will retain the Dow name and be headquartered in Midland, Michigan—Dow’s current home. This business will combine Dow’s Performance Plastics, Performance Materials & Chemicals, Infrastructure Solutions and Consumer Solutions (Consumer Care and Dow Automotive Systems) as well as DuPont’s Performance Materials operating segment. The unit will focus on packaging, infrastructure and consumer care, and should have annual sales of about $40 billion.
The Specialty products division will operate DuPont’s Protection Solutions, Sustainable Solutions, Industrial Biosciences and Nutrition & Health businesses as well as its Electronic Technologies operations.
Essentially, the Specialty products unit will focus on electronics and imaging, transportation, construction and nutrition. It will be headquartered in Wilmington, Delaware. It should have annual sales of about $20 billion.
Even before the breakup, DowDuPont’s outlook remains positive. The company will likely realize substantial cost savings by combining operations. It will also gain more pricing power over suppliers and clients in several areas.
The new Dow, or the Materials business, will most likely be the first spinoff.
DowDuPont trades at a reasonable 17.5 times its forecast 2018 earnings of $4.05 a share. It also plans to begin paying dividends and buying back shares.
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