2/03/2002: DuPont SpinOff of Fibers Unit
DuPont Will Dispose of Fibers Unit By End of 2003 to Focus on Growth
By SUSAN WARREN
Staff Reporter of THE WALL STREET JOURNAL
Striving to become a less cyclical, higher-growth company, chemicals company DuPont Co. said it will sell or spin off its core nylon, polyester and Lycra businesses by the end of next year.
As the first step, DuPont, Wilmington, Del., is putting the businesses into a new subsidiary to be led by its executive vice president and chief operating officer, Richard Goodmanson. The DuPont Textiles & Interiors unit will combine DuPont's old-line polyester and nylon fiber and Stainmaster carpet businesses with its Lycra-brand spandex, along with other related products, and will have about $6.5 billion in annual sales.
Chairman and Chief Executive Charles Holliday said he would consider all options for the unit, though the current preference is to sell stock in the new company to the public. DuPont divested itself of its Conoco Inc. energy unit by selling 30% to the public in 1998 and distributing the rest to its shareholders the following year.
DuPont said it will reorganize the remaining company into five new business units: Electronic & Communication Technologies, with $2.7 billion in annual sales; Performance Materials, with $4.7 billion in sales; Coatings & Color Technologies, with $4.9 billion in sales; Safety & Protection, with $3.6 billion in sales; and Agriculture & Nutrition, with $4.3 billion in sales.
With the move, DuPont will shrink to about $20.2 billion in annual sales from $45 billion in 1997, when it still had Conoco. But sheer size isn't a concern, Mr. Holliday said. "We crossed that mental bridge back when we spun off Conoco. Today, a company has to be focused on adding value," he said.
DuPont has been under pressure to shed its slower-growing businesses to concentrate on more high-growth prospects such as electronics chemicals, biotechnology and specialized plastics. Because of its aging products, analysts have been skeptical that DuPont could reach its goal of 10% annual earnings-per-share growth.
In the current slumping textile and apparel markets, the businesses targeted for sale have been a drag on DuPont earnings, with the polyester business posting a $29 million fourth-quarter loss and nylon earnings down 73% from a year earlier.
"The challenge is to be something other than a cyclical recovery play," said J.P. Morgan analyst Donald Carson, who said he welcomes the reorganization, but added that DuPont should have shed its commodity businesses long ago.
The market reacted positively with DuPont shares up 4.3%, or $1.84, at $44.56 in 4 p.m. New York Stock Exchange trading Monday.
DuPont's reputation as a slow, staid, industrial company, combined with its strong balance sheet, could be viewed more positively in an Enron-stung market, Mr. Carson said. "Financial conservativeness is back in fashion now," he said.
Some slow-growing businesses, such as packaging and industrial plastics, will remain with DuPont, though the company may consider future sales. Mr. Holliday said he rejected the option of lumping together all the company's poor-performing businesses into one company. The fibers businesses were chosen for their compatibility, cash flow and market position.
"This unit can have cost synergies and market power both," Mr. Holliday said.
DuPont said it hired Morgan Stanley to assist it in evaluating the unit's options.
Write to Susan Warren at susan.warren@wsj.com
Updated February 12, 2002 12:01 a.m. EST |
