DowDuPont will shift businesses with $8 billion in annual revenue from its planned material science spinoff to the specialty products spinoff following a previously announced portfolio review.
The DowDuPont merger, completed 31 August, is expected to be followed by a separation into three independent companies within 18 months. Dow and DuPont activist investors, who had pushed for a shift of businesses to the specialty products company, welcomed the move.
The businesses to be transferred to specialty products account for expected 2017 operating EBITDA of approximately $2.4 billion, including approximately 40% of heritage Dow Corning EBITDA. Approximately $4 billion of net sales will shift from the Dow portfolio, evenly split between consumer solutions and infrastructure solutions. And approximately $4 billion of net sales from DuPont’s performance polymers business will shift to specialty products. There were no changes to the planned agricultural chemicals spinoff.
The changes “bear out the clear results of a significant comprehensive analysis the Dow and DuPont boards undertook over the past many months, which benefited from a fresh look provided by independent, third-party external advisors, in particular McKinsey,” says Andrew Liveris, executive chairman of DowDuPont. “We built on the wealth of knowledge gained as both companies advanced our integration work together. These adjustments are also fully supported by the materials science advisory committee, as they better align select businesses with the market verticals they serve, while maintaining integration and innovation strengths within strategic value chains.” Liveris, former chairman and CEO of Dow, leads the materials science advisory committee.
“The facts clearly supported the strategic logic of this portfolio configuration,” says Ed Breen, CEO of DowDuPont. “Each of the intended companies will have even stronger competitive positioning, high value-added customer solutions, and a distinct and compelling investment thesis, while maximizing opportunities for strategic growth and synergies.” Breen, former chairman and CEO of DuPont, leads the specialty products advisory committee.
DowDuPont reiterated plans to achieve annual cost savings of approximately $3 billion and approximately $1 billion in growth synergies. The planned spin offs will consist of the integrated chemicals and materials science company, with revenue of $40 billion/year, based in Midland, Michigan, that will retain the Dow name; an agchems major, based in Wilmington, Delaware, that will keep the DuPont name; and the specialty products company, with sales of $21 billion/year, which will also be based in Wilmington.
“We were pleased to be part of a dialogue that created such a positive outcome for all of DowDuPont’s shareholders,” Third Point said in a statement. Third Point was a Dow investor who had pushed for changes.
Trian, a DuPont investor, said it fully supports the announced portfolio adjustments. “We commend the company’s management, board and advisors for successfully optimizing the portfolio construction of its three core businesses and eventual spinoff companies,” Trian said in a statement. “We also appreciated the opportunity to spend time with both predecessor boards and McKinsey in recent months, to express our views on portfolio optimization. Since we first became involved in the merger discussions in November 2015, we planned to help the company execute this critical review at the appropriate time. We believe this is a great outcome for shareholders.”
The businesses to be moved to specialty products include: Dow automotive systems’ adhesives and fluids platforms; Dow’s building solutions business; Dow’s water and process solutions business; Dow’s pharma and food solutions business; Dow’s microbial control business; DuPont’s performance polymers business; and several silicones-based businesses aligned with applications in industrial LED, semiconductors, medical, as well as Molykote brand lubricants for automotive and industrial equipment and Multibase, which serves the thermoplastic compounding industry.
By Robert Westervelt
Source: Chemical Week
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