DuPont Broken in Two After CEO Exit Seen Raising Value

  • DuPont worth $67 a share after split, Deutsche Bank says
  • Stock surges most in at least 35 years as CEO announces exit

Splitting DuPont Co. in two, an outcome that seems more likely now that Chief Executive Officer Ellen Kullman is departing, would increase the value of the 213-year-old company by about 31 percent.

That, at least, is the estimate from David Begleiter, an analyst at Deutsche Bank AG. Creating two DuPonts, he said in a note Tuesday -- one encompassing pesticide, seeds, nutrition and biofuels, the other chemicals and materials such as Kevlar -- would be worth about $67 a share, according to his sum-of-the-parts valuation. That compares with the stock’s $51.28 closing price Monday before Kullman, 59, announced her retirement.

“Management is struggling to realize the full value of the company,” Hassan Ahmed, an analyst at Alembic Global Advisors in New York, who sees a breakup being more likely, said by phone Tuesday. “A separation of agriculture is in the cards.”

Agriculture is DuPont’s largest business, accounting for 33 percent of company revenue last year. The segment is the world’s second-largest supplier of genetically modified seeds, after Monsanto Co., and its importance within DuPont got even bigger after Kullman spun off the pigment unit in July.

‘Trian Vindicated’

DuPont shares surged Tuesday by the most in six years in anticipation that more value will be unlocked. The Wilmington, Delaware-based company said Kullman will be replaced later this month as both CEO and chairman on an interim basis by board member Edward Breen, who oversaw the dismantlement of Tyco International Plc.

Earlier on Monday, Trian Fund Management, the activist investor that argues DuPont would be worth more as two companies, announced it had added to its stake in the company. In May, Trian co-founder Nelson Peltz led the firm in its proxy fight in a doomed attempt to get board seats.

“It’s kind of bittersweet, because Trian is vindicated in some respects,” said Hank Smith, who helps manage $6.5 billion as chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania. “If DuPont had embraced Trian earlier on and welcomed Peltz on the board, Ellen Kullman would still be CEO.”

No Guarantee

While a breakup of DuPont is now back on the table, there’s no guarantee it will happen, Smith said. A big concern, he said, is that a spinoff of the company’s chemicals businesses might follow the same path as pigment maker Chemours Co., shares of which have slumped 61 percent since its spinoff from DuPont on July 1.

While it’s “logical” to expect a breakup, DuPont investors “may want to be careful what they wish for,” said Chris Shaw, a New York-based analyst at Monness Crespi Hardt. Another risk in splitting up the company is the weakness in agricultural markets amid lower commodity prices. An agriculture-focused DuPont may not get the “lofty” valuation multiple it might have had in the past, Shaw said.

The surprise departure of Kullman, and DuPont’s cut to its full-year profit forecast on Monday, are “credit negatives” that “rekindle questions over portfolio composition,” Moody’s Investors Service said Tuesday in a statement while keeping its rating on DuPont unchanged.

The shares rose 7.7 percent to close at $55.21 in New York on Tuesday after earlier rising as much as 13 percent.

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