Rohm deal may imply DuPont break-up - Citigroup

11 July 2008 14:51  [Source: ICIS news]

TORONTO (ICIS news)--The 74% premium Dow Chemical is paying to acquire Rohm and Haas implies that DuPont is undervalued, suggesting it may be a candidate for break-up, analysts at Citigroup said on Friday.


Excluding its agribusiness, DuPont looked a lot like Rohm and Haas, leaving DuPont shareholders wondering why they couldn’t get a 74% premium as well, Citigroup said in a research note to clients.


One could argue that DuPont had a strong No. 2 agricultural business that could compete more nimbly with Monsanto if it were an independent company, Citigroup said.


DuPont’s coatings and colour business, which accounted for about 23% of 2007 sales, was essentially a commodity business and could be sold to strategic or private equity buyers, the analysts said.


The company’s remaining franchises - electronics, performance materials, and safety & protection - were like, or even a touch better than, the Rohm and Haas business, they said.


DuPont’s management may be able to unlock that value for shareholders if it decided to break the company up.


However, that was a big “if”, for a number of reasons, the analysts said.


First, DuPont’s management seemed committed to the company’s current structure.


Also, with Dow buying Rohm a Dow bid for all or some of DuPont’s businesses was now off the table, Citigroup said.


The other obvious acquirer large enough to target parts of DuPont would be BASF.


Furthermore, the current economic headwinds in the US and signs of deterioration in Europe could depress chemical shares further, Citigroup added.


Therefore, while seeing DuPont’s shares as undervalued relative to the Dow-Rohm deal and other large recent transactions like Akzo-ICI and SABIC-GE Plastics, Citigroup maintained a “hold” rating on DuPont’s shares with a target price of $47, it said.


DuPont’s shares closed at $41.51, up 1.44% on Thursday in New York.


To discuss issues facing the chemical industry go to ICIS connect


($1 = €0.63)

By: Stefan Baumgarten
+1 713 525 2653

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