DuPont stock jumps on plans to split into 3 companies, CEO change

May 22, 2024 4:51 PM EDT
(Updated - May 23, 2024 5:52 AM EDT)

DuPont (NYSE: DD) announced it plans to divide itself into three independent, publicly traded companies, focusing on Electronics, Water, and a diversified industrial segment.

Shares gained roughly 5% in premarket trading Thursday.

This move is expected to enhance shareholder value by allowing each entity to concentrate on its specific market, with the separations intended to be tax-free to DuPont shareholders, the company said.

The planned reorganization will see New DuPont emerge as a diversified industrial leader, while the Electronics and Water businesses will operate as standalone companies, each with distinct boards and management teams.

New DuPont will retain its core businesses, excluding Water Solutions, and will continue to leverage its materials science expertise across various sectors, including healthcare and electric vehicles.

The company is expected to maintain a strong financial position, with approximately $6.6 billion in net sales and an operating EBITDA margin of about 24% in 2023. The new structure aims to sustain high margins and robust cash flow, with a financial policy similar to the current DuPont.

The Electronics business, with approximately $4.0 billion in net sales and a 29% operating EBITDA margin in 2023, will focus on semiconductor solutions and advanced electronics products. It is strategically positioned to benefit from the growth in high-performance computing, AI, and the Internet of Things.

The Water business, a leader in water filtration and purification technologies, reported net sales of about $1.5 billion and a 24% operating EBITDA margin in 2023. It is poised for earnings growth through continued investment and potential acquisitions.

DuPont anticipates that the separations will be completed within 18 to 24 months, subject to customary conditions and approvals, including from DuPont's Board of Directors and regulatory authorities.

"DD has long maintained that its multiple does not reflect the earnings & secular growth power of its portfolio (particularly Water & Electronics) and we think the move provides strategic flexibility and appeals to different investor bases," Citi analysts commented.

Similarly, UBS analysts said in a note they view the decision as a positive one for the group, and expect it will "drive a higher value realization for the Electronics and Water businesses in particular, which we see as the most undervalued in the portfolio."

Concurrent with the separation announcement, DuPont has named Lori Koch, the current CFO, as the new CEO effective June 1, 2024, succeeding Ed Breen, who will remain as Executive Chairman.

Antonella Franzen, CFO of DuPont's Water & Protection segment, will become the new CFO. Both Koch and Franzen will continue in their roles for New DuPont after the split. Further executive and board appointments will be disclosed before the separations.

DuPont also reaffirmed its financial outlook for the second quarter and the full year of 2024, as previously released on May 1, 2024.

By Senad Karaahmetovic

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