DuPont Considers Alternatives to Spinoff, Tronox Jumps

DuPont Co. is considering alternatives to a planned spinoff of its performance chemicals unit, which may pave the way for a deal with Tronox Ltd. Tronox shares rose the most since February.

DuPont is considering a so-called Reverse Morris Trust for the unit that makes titanium-dioxide pigment, Teflon and refrigerants, Chief Financial Officer Nicholas Fanandakis said today. A Reverse Morris Trust may create “synergies” with a potential partner, he said.

The company, the largest U.S. chemical maker by market value, announced plans in October to spin off the unit because of volatile earnings. In a Reverse Morris Trust, a company first spins off unwanted assets to its stockholders. The tax-free transaction is completed when the new company merges with a smaller company, giving shareholders of the spinoff a majority stake.

“We are open to the possibility of someone coming in with an RMT or even a sale, a direct purchase opportunity,” Fanandakis said today at Goldman Sachs Group Inc.’s Basic Materials Conference in New York. “It’s got to be of sufficient value, though, to offset the risk and uncertainty that we would take with that endeavor versus pursuing the spin path.”

Possible Deal

The CFO’s comments increase the chances that Dupont will enter into a Reverse Morris Trust with Tronox, combining the companies’ titanium-dioxide assets, Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said today in a note. Such a deal would almost triple the value of Tronox’s net operating losses, which can be applied toward tax obligations, to $1.6 billion, he said.

“We have consistently made the case that such a transaction with Tronox could be a win-win for both companies,” Ahmed said. He recommends buying Tronox shares and doesn’t rate DuPont.

Tronox rose 7.6 percent to $26.13 at the close in New York, the most since Feb. 27. DuPont gained 0.8 percent to $67.22.

David Silverman, a spokesman for Stamford, Connecticut-based Tronox, declined to comment on a possible transaction, as did Dan Turner, a spokesman for Wilmington, Delaware-based DuPont.

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