According to industrial sources, private equity firms are
joining hands to bid for chemical giant
E. I. Du Pont de Nemours and Company
's (
DD
) car paint business. The intention is to share the cost which is
estimated to be more than $4 billion.
DuPont's Performance Coatings business reported sales of $1.1
billion in the fourth quarter of 2011, representing about 13.1% of
the total revenue of $8.4 billion. The segment accounted for only
7.6% of the total pretax operating margin. This margin represents
half of the corporate average. Thus, the industry sources pointed
out DuPont was considering the sale of car paints division in order
to improve its portfolio.
Around ten private equity firms have shown interest and the
first round of bids for the unit is due on March 7. The bid will
require the firms to pay huge sum of around $1.5 billion to $2.0
billion so by teaming up together the buyout firms will be able to
share the costs. The company's adviser on the agreement,
Credit Suisse Group
(
CS
) had sent financial resources connected to the unit sale to
concerned clients in February 2012.
The company's unit has not been performing as per expectations
and high energy and freight costs have also been a drag on the
unit. Given this conditions, the company's decision to sell off
this unit can prove more profitable for it.
Despite soft demand for consumer electronics segment and weak
markets for housing and construction, DuPont delivered exceptional
results for full-year 2011. The company reported earnings of 35
cents per share in the fourth quarter of 2011 compared with 50
cents in the year-ago quarter. The profit exceeded the Zacks
Consensus Estimate of 33 cents per share.
A higher tax rate in the quarter led to the year-over-year
decline in profit. Further, higher selling prices during the
quarter was offset by increased spending on selling, marketing and
research and development, higher costs for raw materials, energy
and freight as well as lower sales volumes.
For full-year 2011, the company reported earnings of $3.93 per
share, up 20% from $3.28 per share in 2010, exceeding the Zacks
Consensus Estimate by a penny. Sales in the quarter grew 14% to
$8.4 billion due to an increase of 14% in prices and higher
agriculture segment sales. However, the quarter witnessed declining
sales volumes due to destocking in photovoltaics, polymer and
industrial supply chains. The consumer electronics and construction
division also faced soft demand. For fiscal year 2011, sales jumped
by 20% to $38.0 billion.
We believe that the slowdown in global economic growth in the
fourth quarter will continue in the first quarter of 2012,
gradually improving in the second half of 2012. The company also
faces stiff competition from
The Dow Chemical Company
(
DOW
) and
BASF SE
(
BASFY
).
However, markets for DuPont's agriculture and food businesses
continue to be strong, especially with a strong planting season in
Latin America. Therefore, the company retains a Zacks #3 Rank,
which translates into a short-term (1 to 3 months) Hold rating and
we have recommended the shares of the company as Neutral for the
long-term (more than 6 months).
BASF SE (
BASFY
): Free Stock Analysis Report
CREDIT SUISSE (
CS
): Free Stock Analysis Report
DU PONT (
EI
) DE (
DD
): Free Stock Analysis Report
DOW CHEMICAL (
DOW
): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research