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The circle of life for companies often involves an organic growth stage, followed by a series of acquisitions – sometimes complementary to the core business, often not – and then finally a slimming down process by writing down or spinning various divisions. Larry Culp engineered the final part brilliantly at General Electric (GE) through numerous divestitures and spinoffs over the last few years and it looks like DuPont now wants to follow the same playbook.
DuPont de Nemours Inc. (DD): $80.72
Market Cap: $33.31B
EV: $40.44B
Key Insights
DuPont de Nemours provides a diverse range of products, such as construction materials, adhesives, electronic, fabrics, fibers, home garden, medical devices, resins, printing, and consumer products. The company operates through the following segments: Electronics and Industrial, Water and Protection, and Corporate and Others.
This isn’t the first time DuPont has undergone a transformative corporate split. In 2015, DuPont spun off Chemours (DuPont’s performance chemicals business, producing products like Teflon and titanium dioxide) as a separate entity.
Then the old DuPont merged with Dow in a $130 billion megadeal in 2017. In 2019, DowDuPont was split into three distinct entities—Dow (Materials), DuPont (Specialty Business), and Corteva, the company’s agriculture business.
DuPont’s recent action to divide into three companies mirrors a prevailing trend among conglomerates pursuing a more focused strategy through spin-offs.
Over the past few years, several multibillion-dollar conglomerates have embarked on spinning off operations to enhance operational efficiency and strategic clarity. 3M (MMM) recently completed the spin-off of its healthcare business. Likewise, General Electric restructured into three more specialized companies—GE Aerospace (GE), GE Vernova (GEV), and GE Healthcare Technologies (GEHC). Additionally, AT&T (T) divested several subsidiaries and spun off WarnerMedia, merging it with Discovery to form the heavily indebted Warner Bros. Discovery (WBD).
CEO Edward Breen said the news of DuPont dividing its company into three separate entities offered an “extraordinary opportunity” to deliver value to shareholders.
Overview of Three Leading Standalone Companies (Investor Update Call) (Presentation)
New DuPont: A Diversified Industrial Company with a Portfolio of Iconic Brands and Solutions
New DuPont is poised to become a diversified industrial company in materials science, innovation, manufacturing, and iconic brands like Tyvek®, Kevlar®, and Nomex®. The company will have a significant presence in fast-growing healthcare markets, including biopharma consumables, medical devices, and packaging, and will lead in advanced mobility technologies, particularly for electric vehicles.
New DuPont will include the existing businesses within the Water & Protection segment (excluding Water Solutions), the majority of businesses within Industrial Solutions (including healthcare), and the retained businesses reported in Corporate (including adhesives).
In 2023, these segments generated around $6.6 billion in net sales with an operating EBITDA margin of 24%.
Electronics:
The Electronics spinoff appears to be the most interesting at first glance because it is expected to grow much faster than the other divisions and at higher margins.
DuPont expects that the company will be well positioned to capture growth in the semiconductor industry, driven by high-performance computing demands in artificial intelligence (AI), high-speed connectivity, smart and autonomous vehicles and the Internet of Things (IoT), and other mega-trend growth drivers.
Electronics will consist of the current Semiconductor Technologies and Interconnect Solutions businesses, along with electronics-related product lines from Industrial Solutions.
In 2023, these segments generated approximately $4 billion in net sales and achieved an operating EBITDA margin of about 29%.
Over the years, DuPont has made significant investments in semiconductor manufacturing, highlighted by the opening of a new plant in Newark last November and ongoing plans to establish a $50 million facility in Glasgow.
2024 Segment Expectations
Water:
Water business offers a comprehensive portfolio of water filtration and purification solutions, including advanced reverse osmosis, ion exchange, and ultrafiltration technologies. These solutions provide essential components and systems to produce clean, fit-for-purpose water across various market segments, such as industrial water and energy, life sciences and specialties, municipal and desalination, and residential and commercial sectors.
The Water segment will consist of DuPont’s current Water Solutions business, which generated approximately $1.5 billion in net sales and had an operating EBITDA margin of around 24% in 2023.
The spinoff process is anticipated to span 18 to 24 months (between late 2025 and June 2026) and incur approximately $700 million in costs for DuPont. Additionally, executives have indicated an estimated expenditure of around $60 million to establish dedicated management teams for each business during investors call.
All three companies “will have strong balance sheets and will be capitalized to provide the financial flexibility to take advantage of future growth opportunities. New DuPont is expected to maintain its investment-grade credit rating,” DuPont said.
2024 Segment Expectations
Valuation
The company’s financial performance shows revenue fluctuations within a narrow range. In the last 5 years, the stock is up by only 8%. The company has a market cap of $33.62 billion, an enterprise value of $40.44 billion, including $6 billion in net debt. The forward P/E ratio is 23.45.
Balance sheet
The company is committed to maintaining a strong investment-grade credit profile and aims for leverage of 2.0x adjusted net debt/EBITDA.
There are no significant long-term debt maturities until November 2025.
Share repurchases
Between November 2022 and April 2024, approximately 15% of common shares were retired through share repurchases. In April 2024, a $500 million Accelerated Share Repurchase (ASR) was completed under a $1 billion share buyback program authorized in February 2024.
Dividends
A quarterly dividend of $0.38 per share for the second quarter of 2024 was declared, reflecting a 6% increase compared to 2023. The company targets a payout ratio of approximately 35-45% and plans to grow dividends in line with earnings performance over time.
Investor Overview Presentation – June 14, 2024
Breakup Expert Edward Breen: During his decade-long tenure as CEO of Tyco International Ltd., Mr. Breen twice split the company. Mr. Breen initially became DuPont’s CEO in 2015 and immediately began the process of merging with the major chemical manufacturer Dow.
However, less than 18 months after the merger, the conglomerate was split into three separate companies due to its inability to achieve consistent annual growth. This earned Breen the nickname “the break-up expert” from the Wall Street Journal. He stepped down as CEO following the completion of the split in June 2019 but returned to DuPont in 2020.
Conclusion
With Breen set to retire again, concerns arise regarding the succession plan, particularly as his handpicked replacement in the past proved to be ineffective. Instead of bringing in a strong operations leader, the reins are being handed over to the CFO, prompting questions about the potential risks of such a move.
Additionally, DuPont’s business is notably cyclical, and sensitive to economic fluctuations. While the breakup may seem beneficial in theory, concerns linger regarding the potential costs and disruptions associated with restructuring the management teams. Only time will tell if this move’s a game-changer or just more of the same corporate cycle. The long timeline provided for the spinoffs will give us ample time to understand, which divisions would be worth investing in post-spinoff and which ones are best left untouched.
CEO
CFO
General Counsel
Others
Appointments
1. Alphabet (GOOGL): $175.09
On June 5, 2024, Alphabet announced the appointment of Anat Ashkenazi as the new Chief Financial Officer of Alphabet and Google, effective July 31, 2024.
| MarketCap: $2.17T | Avg. Daily Volume (30 days): 22,790,116 | Revenue (TTM): $318.15B |
| Net Income Margin (TTM): 25.90% | ROE (TTM): 29.76% | Net Cash: $79.71B |
| P/E: 26.87 | Forward P/E: 23.17 | EV/EBIDTA (TTM): 19.06 |
| P/S (TTM): 6.90 | P/B (TTM): 7.40 | 52 Week Range: $115.09 – $180.41 |
2. Spirit Aerosystems (SPR): $31.14
On June 5, 2024, Spirit AeroSystems Holdings announced Chief Financial Officer of Time Warner Cable Irene Esteves has been appointed the new Chief Financial Officer effective immediately.
| MarketCap: $3.63B | Avg. Daily Volume (30 days): 1,813,955 | Revenue (TTM): $6.32B |
| Net Income Margin (TTM): -15.06% | ROE (TTM): 122.10% | Net Debt: $3.81B |
| P/E: N/A | Forward P/E: N/A | EV/EBIDTA (TTM): -23.39 |
| P/S (TTM): 0.54 | P/B (TTM): N/A | 52 Week Range: $14.65 – $36.34 |
3. Chemours Company (CC): $23.85
On May 31, 2024, the Board of Directors of The Chemours Company appointed Shane Hostetter as Chief Financial Officer, effective as of July 1, 2024.
| MarketCap: $3.55B | Avg. Daily Volume (30 days): 1,394,125 | Revenue (TTM): $5.84B |
| Net Income Margin (TTM): -5.67% | ROE (TTM): -33.30% | Net Debt: $3.51B |
| P/E: N/A | Forward P/E: N/A | EV/EBIDTA (TTM): 8.13 |
| P/S (TTM): 0.61 | P/B (TTM): 4.72 | 52 Week Range: $14.97 – $37.72 |
4. Autodesk (ADSK): $244.12
On May 31, 2024, the company appointed Elizabeth Rafael as interim Chief Financial Officer, effective May 31, 2024.
| MarketCap: $52.61B | Avg. Daily Volume (30 days): 3,099,976 | Revenue (TTM): $5.65B |
| Net Income Margin (TTM): 17.66% | ROE (TTM): 65.21% | Net Debt: $387M |
| P/E: 53.07 | Forward P/E: 49.79 | EV/EBIDTA (TTM): 40.49 |
| P/S (TTM): 9.25 | P/B (TTM): 24.29 | 52 Week Range: $192.01 – $279.53 |
5. DuPont de Nemours (DD): $80.72
On May 22, 2024, DuPont de Nemours announced that, effective June 1, 2024, Lori D. Koch, the company’s Chief Financial Officer will succeed Edward D. Breen as Chief Executive Officer.
| MarketCap: $33.75B | Avg. Daily Volume (30 days): 3,079,907 | Revenue (TTM): $11.98B |
| Net Income Margin (TTM): 2.96% | ROE (TTM): 1.73% | Net Debt: $6B |
| P/E: 89.50 | Forward P/E: 23.45 | EV/EBIDTA (TTM): 14.30 |
| P/S (TTM): 2.97 | P/B (TTM): 1.43 | 52 Week Range: $60.52 – $82.24 |
Departures
1. UiPath (PATH): $11.26
On May 23, 2024, Robert Enslin informed UiPath of his resignation from the Board of Directors and from his position as Chief Executive Officer of the company, effective June 1, 2024.
| MarketCap: $6.45B | Avg. Daily Volume (30 days): 18,630,171 | Revenue (TTM): $1.35B |
| Net Income Margin (TTM): -6.41% | ROE (TTM): -4.35% | Net Cash: $1.86B |
| P/E: N/A | Forward P/E: N/A | EV/EBIDTA (TTM): -31.36 |
| P/S (TTM): 4.72 | P/B (TTM): 3.18 | 52 Week Range: $11.23 – $27.87 |
2. Autodesk (ADSK): $244.12
On May 31, 2024, Deborah Clifford transitioned from her previous position as the company’s Executive Vice President and Chief Financial Officer to Chief Strategy Officer effective May 31, 2024.
| MarketCap: $52.61B | Avg. Daily Volume (30 days): 3,099,976 | Revenue (TTM): $5.65B |
| Net Income Margin (TTM): 17.66% | ROE (TTM): 65.21% | Net Debt: $387M |
| P/E: 53.07 | Forward P/E: 49.79 | EV/EBIDTA (TTM): 40.49 |
| P/S (TTM): 9.25 | P/B (TTM): 24.29 | 52 Week Range: $192.01 – $279.53 |
3. CNA Financial (CNA): $44.33
On June 5, 2024, CNA Financial announced that Dino E. Robusto would step down as CEO and Chairman on December 31, 2024. He will then become Executive Chairman of the Board on January 1, 2025.
| MarketCap: $12.03B | Avg. Daily Volume (30 days): 345,322 | Revenue (TTM): $13.59B |
| Net Income Margin (TTM): 9.17% | ROE (TTM): 13.60% | Net Debt: $3.11B |
| P/E: 9.68 | Forward P/E: 9.07 | EV/EBIDTA (TTM): 8.48 |
| P/S (TTM): 0.89 | P/B (TTM): 1.24 | 52 Week Range: $36.06 – $46.47 |
4. Lattice Semiconductor (LSCC): $60.03
On June 3, 2024, Lattice Semiconductor Corporation announced that James Anderson on May 31, 2024, resigns from his position as President, Chief Executive Officer, and member of the Board to pursue an opportunity with another company, effective June 3, 2024.
| MarketCap: $8.26B | Avg. Daily Volume (30 days): 2,551,793 | Revenue (TTM): $693.66M |
| Net Income Margin (TTM): 31.42% | ROE (TTM): 36.39% | Net Debt: N/A |
| P/E: 38.43 | Forward P/E: 50.64 | EV/EBIDTA (TTM): 39.13 |
| P/S (TTM): 11.92 | P/B (TTM): 12.09 | 52 Week Range: $51.96 – $98.30 |
5. DuPont de Nemours (DD): $80.72
| MarketCap: $33.75B | Avg. Daily Volume (30 days): 3,079,907 | Revenue (TTM): $11.98B |
| Net Income Margin (TTM): 2.96% | ROE (TTM): 1.73% | Net Debt: $6B |
| P/E: 89.50 | Forward P/E: 23.45 | EV/EBIDTA (TTM): 14.30 |
| P/S (TTM): 2.97 | P/B (TTM): 1.43 | 52 Week Range: $60.52 – $82.24 |
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