'Kevlar to cupcakes': DowDuPont beefs up a 'hodgepodge' successor company

DowDuPont Inc., the temporary manufacturing giant formed in the Sept. 1 merger of Dow Chemical Co. and DuPont Co., said Tuesday that it has amended its 2015 breakup blueprint. It now plans to transfer its automotive-supply and several other materials businesses, with total yearly sales of $8 billion, to a DuPont successor company based in Delaware instead of its planned Dow successor in Michigan — with maybe another breakup later.

"We're going to run lean and mean," chief executive Edward Breen promised in an investor conference call, noting that DowDuPont is also working on plans to cut $3 billion in expenses (on top of earlier cuts) by shutting down plants, laying off workers, and reducing the number of suppliers.

This is "a once-in-a-lifetime opportunity to reconfigure 300 years of corporate history to market-driven, technology-based, low-cost integration," added chairman Andrew Liveris. (DuPont was more than 200 years old, and Dow more than 100, when the companies merged.)

"We believe this is a great outcome for shareholders," billionaire investor Nelson Peltz's Trian Partners, which had pressed DuPont since 2014 to cut costs, sell assets, and boost profits, said in an emailed statement. Trian "fully supports the portfolio adjustments." Trian praised executives (headed by Breen and Liveris), directors, and advisers including McKinsey & Co. and Trian itself, for improving their earlier plan.

"We were pleased to be part of a dialogue that created such a positive outcome for all of Dow/DuPont's shareholders," said Peltz ally Daniel Loeb's Third Point Partners in a statement.

The future DuPont, after its pesticide and seed businesses are merged with Dow farm sales units to form a third company, will still include four divisions — but with significant changes from the initial two-year-old proposal: The business groupings will now be Electronics and  Imaging (including LEDs); Safety and Construction; the newly added Transportation and Advanced Polymers group; plus a combined Nutrition and Biosciences (food additives) business, previously proposed as two separate smaller groups. (DuPont's ethylene copolymers group of seals and resins will still move to Dow per the earlier plan.)

Even after separating pesticides, DuPont veterans have said the company will still make everything from "Kevlar to cupcakes." The DuPont successor looks like "a hodgepodge company," Frank Mitsch, stock analyst at Wells Fargo Securities, told Breen during the conference call.

The four "very disparate businesses," each with sales of about $5 billion a year, "could readily be separable into separate standalone companies," Mitsch added.

"You're absolutely correct," said Breen. "All our options [are] open."

Asked by Vincent Andrews, analyst for Morgan Stanley, if there were tax-related limitations on the speed with which Breen could follow up the tax-free DowDuPont combination and break up the DuPont successor company and sell its assets, Breen said: "You have to wait two years or so. We understand the rules. We've done this stuff before."

Breen previously ran Tyco International Ltd., of West Windsor, N.J., and broke it into several successors in the late 2000s. Of those, TE Connectivity, the Paoli electrical parts and sensors maker, is the last independent public company.

The DuPont successor company will be significantly larger than was proposed in 2015, with yearly sales of about $21 billion, up from $12 billion. That includes about $3 billion in Dow Chemical businesses to be moved to the DuPont successor: Dow Automotive Systems, including adhesives and fluids; Dow Building Systems; Dow Water and Process Solutions; Dow Pharma and Food Solutions (most of which was already slated to join DuPont); Dow Microbial Control; and DuPont Performance Polymers, a $5 billion business that had been slated to join the Dow group, whose sales will now total about $40 billion a year.