DuPont seeks exit from paints business to focus on farms

plans to exit its once-lucrative paint pigments business to focus on a thriving agricultural unit better equipped to shield the biggest U.S. chemicals maker from market volatility.

DuPont's shares rose as much as 6 percent to their highest in more than 13 years after the company said it would consider selling or spinning off its performance chemicals unit, which contributed a fifth of its sales last year.

Chief Executive Ellen Kullman said DuPont's earnings would be "significantly better" in the second half of 2013 than in the same period last year due to agricultural growth in the Americas - reinforcing the planned exit from performance chemicals.

DuPont is joining an industry-wide shift among chemical makers, including rival Dow Chemical , into production of seeds and pesticides, which have proven to be less exposed to market ebbs and flows than the popular pigment titanium dioxide.

Agricultural demand is driven by North American farmers in the first half of the year and South American farmers in the second. The expanding global population, particularly in Asia, is also driving demand for fertilizers, seeds and pesticides.

But demand for titanium dioxide, a pigment that gives shine to car paints, sunscreen and toothpaste, has long been susceptible to swings in the global economy.

Global titanium dioxide prices went into tailspin last year after the world's biggest producers, including DuPont, Saudi Arabia's Cristal Global, Tronox Ltd and Huntsman Corp , restarted plants idled during the recession.

As prices declined, revenue within DuPont's performance chemicals unit fell 8 percent in 2012. Kullman said the company had been weighing the cash generation of the businesses against their cyclical nature and "lower growth profile".

"There is nothing science can do to arrest the volatility or the cyclicality of these businesses," she said on a conference call, adding DuPont would focus on "science-driven" businesses such as agriculture, nutrition and industrial biosciences.

Analysts said the hand of a new investor might also be behind the move. Nelson Peltz, a force behind some of the global food industry's biggest deals, had amassed a "big stake" in DuPont through his Trian Fund Management, CNBC reported last week.

Some investors have blamed the performance chemicals business for weighing on DuPont's shares, which trade at a discount to those of another rival in the agriculture business, Monsanto Co .

"I don't think we would have seen this move about the performance chemicals business in this quarterly release without revelations about activist investors getting involved," said Stephen Hoedt, senior equity research analyst with Key Private Bank.

Kullman, in an interview with CNBC on Tuesday, said she had not spoken to Peltz. She said she had heard "rumors" about his acquisition of a stake.

SPIN OFF OR SALE?

DuPont's performance chemicals unit, of which paints pigments are a big part, generated total sales of $7.2 billion in 2012.

In a note to clients, BGC Financial analyst Mark Gulley estimated that the unit could be worth about $8.9 billion pre-tax.

But DuPont might find it easier to spin off the business or seal private-equity deals than find a strategic buyer for the performance chemical business, said John Roberts, who leads U.S. chemical coverage at UBS Investment Research.

Roberts cited smaller rival Rockwood Holding Inc's difficulties in finding a buyer for its titanium dioxide business.

DuPont itself declined to comment.

"It's way too soon to go down a path of who might be a potential buyer," Chief Financial Officer Nick Fanandakis said in an interview with Reuters.

Huntsman, which is also exploring options for its titanium dioxide business, could be looking to buy Rockwood's pigments unit, Reuters reported this month.

Wilmington, Delaware-based DuPont, a 211-year-old company, sold its car paint unit for $5 billion last year and bought nutritional supplements maker Danisco for $6 billion in 2011.

Sales of pesticides and other agricultural products helped DuPont's quarterly profit scrape past analysts' estimates, as paint pigments once again lagged. Net income fell 13 percent to $1.03 billion in the second quarter.

DuPont's shares shed earlier gains to trade up just 0.5 percent at $57.40 in midday trading on the New York Stock Exchange. They have risen about 20 percent in the last six months.

(Additional reporting by Garima Goel in Bangalore; Editing by Saumyadeb Chakrabarty and Robin Paxton)

Source: http://news.yahoo.com/dupont-says-may-sell-spin-off-paint-pigments-102111052.html

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