DowDuPont 3-way Split is almost over with Dow and Corteva Spinoff
Illustration of Joel Arbaje
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Sanford Bernstein analyst Jonas Oxgaard recently called
DowDuPont
merger and 3-way split "most complicated action in business history." And it's not quite finished yet. There are still several moving parts and things to be aware of before the last part of the agreement is finished June 1.
Oxgaard's claim is difficult to verify, but it does not feel far from the truth.
Consider, Heritage-Dow and Heritage-duPont announced its intention to form the largest chemical company in the world 1,266 days ago. The deal was approved 630 days after that, and the final split will be completed June 1, 638 days after the merger approval.
The final transaction is spinoff of the agricultural division, called
Corteva
(ticker: CTVA). It began trading on an "when issued" basis on May 24, opening at around $ 29 per share.
Barron s recently wrote Corteva competitor
FMC
(FMC) was the easier way to invest in the aquaculture sector, but that was when the Corteva shares were traded at $ 32 a piece. Now the shares are trading around $ 28.50, down 11% from Friday's level. This gives the agricultural business a market value of around $ 21 billion, except for the unpaid $ 4 billion pension obligation. The pension is the only debt instrument on Corteva's balance sheet. The management told Barron that the company is expected to have very little long-term debt, with the majority of the financial influence associated with the working capital requirements for the agricultural business.
Barron's does not believe that investors should treat unfunded pension obligations just as debt. If investors want to do so, they should fear accounting adjustments for all the stated assumptions related to the pension rate, expected return and expenses. It's easiest and expedient to add 80% of the unpaid amount to debt, giving Corteva a market value, including all financial leverage, of around $ 24.5 billion, or 9.4 times the estimated 2020 earnings before interest, taxes , depreciation and amortization. There is a 16% discount on other specialty chemicals companies Corteva will be compared to.
It's attractive, so the Corteva share is still interesting, but all that math illustrates why investors need to be cautious about the volatility of the Corteva stock. In addition, "when issued" trading volume is small, only about $ 5 million of the Corteva share has changed hands so far. The new
Dow
(DOW) Stocks, on the other hand, is about $ 250 million in value every day.
And there is more to think about than Corteva.
DowDuPont, who will be DuPont (DD), announced a reverse share split that would be completed on June 1. DowDuPont shareholders will receive 1 new DuPont share for every 3 DowDuPont shares held. This will mean that the DowDuPont share price will triple, except for the Corteva value when it becomes DuPont. Right now, it would make the June 1 stock price around $ 65. However, it is not a coincidence for investors and dividend yields will not change. The management is simply adjusted the share price to a desired level.
Current DowDuPont CEO Ed Breen met investors on Tuesday. (Breen is the chaniman chosen by DuPont and Mark Doyle will take over as CEO on June 1). The glacier repeated the guidance given on DowDuPont's revenue conference call. He also said he plans to sell up to 10% of the remaining DuPont portfolio.
Finally, DowDuPont also announced a $ 1 billion write-down in the business and life sciences segment. It accounts for only about 1% of the DowDuPont assets, and can be attributed to the battles in the bioethanol business. (It is a minor element, but highlights how good capital can generate unexpected losses for investors.)
There is so much going on, it can be difficult to keep track of. It will be easier when all the companies survive themselves. If investors continue to sell their shares, because of complexity or because of global growth fear, there may soon be good values.
DowDuPont stock is down 15% since April 1 when Dow spun off. The Dow share is down 10% since April 1. In addition to the well-known Corteva value from the DowDuPont shares, the share is actually from 20% since April 1. Corteva is down more than 10% from the last Friday's top prize. The
Dow Jones Industrial Average
has been 4.4% since April 1st.
Write to Al Root at allen.root@dowjones.com
