DuPont flags $60 million in dis-synergies from break-up, assures on PFAS liabilities

HOUSTON (ICIS)–DuPont expects about $60 million in dis-synergies from its break-up into three independent publicly traded companies, CEO Ed Breen and CFO Lori Koch told analysts in a conference call on Thursday.

The US specialty chemicals and materials company announced late on Wednesday that it plans to separate its electronics and water businesses into two publicly traded companies while the existing DuPont, dubbed “New DuPont”, will continue as a diversified industrial company.

The dis-synergies were largely related to insurance, audit fees, leadership and boards, that is, “public company stand-up costs”, Koch said.

The dis-synergies were “not a huge number” and would be across all three companies, she said.

As for separation costs, those are estimated at $700 million, with the biggest cost items being IT separation and tax, legal and audit work, she said.

DIVESTMENT NOT RULED OUT
While DuPont is pursuing spin-offs and is not running a parallel M&A processes for electronics and water, it does not entirely rule out divesting them.

“If somebody wants to call and propose something, we are going to listen to it,” Breen said in response to analysts’ questions.

He also said that the water business, which is relatively smaller, may be spun off before electronics.

The timing for the separations is good as markets are coming out of destocking cycles, Breen noted.

Especially in semiconductors, “we are going into a real upcycle”, he added.

DuPont has been working on the separation for about six months and expects to complete it within the coming 18-24 months, he said.

The relatively long completion timeline is mainly due to tax matters as DuPont intends to execute tax-free separations, he said.

In some of the countries where DuPont operating, a separated business must be run for a full 12 months before it gets tax-free status, Breen said.

New DuPont, with annual sales of $6.6 billion, and the electronic spin-off (sales: $4.0 billion), are expected to have investment-grade balance sheets whereas the smaller water business (sales: $1.5 billion), may not, Koch said.

PFAS
As for DuPont’s liabilities for poly- and perfluoroalkyl substances (PFAS), those will be allocated between the three companies pro rata, based on their earnings before interest, tax, depreciation and amortization (EBITDA) in the last year before the spin-off, Breen said.

The amount of PFAS liabilities may not be that large as DuPont expects to “make great progress” on settling claims by the time the spin-offs will be completed in 18-24 months, he said.

BREEN’S NEW ROLE
Breen will step down as CEO on 1 June, to be succeeded by Koch.

However, he will continue as full-time executive chairman of DuPont’s board of directors, focusing on the separations, including the appointment of the spin-off companies’ boards and the hiring of their management teams.

Breen would not rule out that he may join the boards of the electronics and water spin-offs but added that a decision has yet to be made.

PROFILES OF THE THREE COMPANIES’ MARKETS

New DuPont, focused on healthcare, advanced mobility, and safety & protection:


Electronics, focused on semi-conductors and interconnect solutions:

Raw materials used by the electronic business include, among others, monomers, pigments and dyes, styrenic block copolymers, copper foil, filler alumina, nickel, silver, palladium, photoactive compounds, polyester and other polymer films, polyethylene (PE) resins, polyurethane (PU) resins, polyvinyl chloride (PVC) compounds and silicones, according to DuPont’s website.

Water, focused on reverse osmosis, ion exchange, and ultra filtration:

Raw materials used by the water business include, among others, methyl methacrylate (MMA), styrene, polysulfone, high density polyethylene (HDPE),
polyethylene (PE), aniline, calcium chloride, caustic and sulfuric acid, according to DuPont’s website.

DuPont’s shares traded at $78.44/share, down 0.13%, at 11:00 local time on the New York Stock Exchange.

With additional reporting by Al Greenwood

Thumbnail photo source: DuPont