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A week later terminating its deal to acquire Rogers Corp., DuPont will now instead invest $5 billion into stock buybacks. | DBT PHOTO BY JACOB OWENS[/caption]
WILMINGTON – Fresh off of ending its pursuit of a major acquisition of Rogers Corp., DuPont announced Tuesday that it will instead invest $5 billion in stock buybacks while also repaying corporate debt to improve share value.
Last week, DuPont reported that it was terminating its $5.2 billion acquisition of Arizona-based engineered materials and components company Rogers Corp. after it failed to get approval for the deal from Chinese regulators, where both companies do business. The Wilmington-based DuPont also closed the $11.2 billion sale of its Mobility & Materials segment to Celanese Corp. last week though; the proceeds of which were intended to help pay for the Rogers deal.
Now left without an acquisition target, DuPont will put its eye toward smaller deals while boosting its stock and balance sheet, CEO Ed Breen told investment analysts Tuesday after reporting the company’s better-than-expected third quarter earnings.
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DuPont CEO Ed Breen has set a strategy of transformation for the company, but that plan is challenged by the failed acquisition of Rogers Corp. | DBT PHOTO BY KATIE TABELING[/caption]
“We are starting the next phase of our growth from a position of strength, leveraging highly profitable businesses with strong and leading market position centered in growing markets as well as a healthy balance sheet. These assets include some of the best intellectual property in their respective industry verticals with globally recognized brands familiar to us all as well as the thousands of long-time B2B industrial customers,” Breen said.
On Tuesday, DuPont announced that its board of directors has approved a $5 billion share repurchase program that runs until June 2024, which also features an accelerated plan to deploy $3.25 billion of that in the next six to nine months.
DuPont had nearly 501 million shares outstanding at the end of the third quarter, nearly three-quarters of which are held by investment funds. Its value rose about 7% to $66.28 per share Tuesday after news of the program was announced. Wiping a significant number of those shares off the books could help value that has flagged in the past four years, as DuPont was trading for more than $100 a share in 2018.
In addition to the share repurchases, DuPont will spend $2.5 billion of the M&M sale proceeds to pay off debt set to expire next year before the end of this year, saving $100 million in interest payments and removing risk of having to refinance in a higher rate environment next year.
Calling the termination of the Rogers deal “an unfortunate outcome,” Breen told analysts that DuPont still has “a portfolio that can perform alongside the best diversified industrial companies.” He didn’t go into detail as to why the company decided to pay a $162.5 million termination fee rather than continue to try to push for Chinese approval, noting it had been a year and they passed the date they had set to win approval of the deal.
Last year, Breen, who is best known here for shepherding the merger of the legacy DuPont company with Dow and soon after breaking it apart again, announced a strategy of refocusing DuPont on high-growth industries where it already had footholds, including electronics, water treatment, personal protection, industrial technologies and next-generation automotive.
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DuPont closed its $7.3 billion deal with IFF on Feb. 1, 2021, and also signed another $500 million deal for its clean technologies business. | DBT PHOTO BY JACOB OWENS[/caption]
He’s no stranger to bold deals, having sold DuPont’s Nutrition & Biosciences segment to International Flavors & Fragrances for about $7.3 billion in 2021 and then acquiring Chinese company Laird Performance Materials for $2.3 billion just months later.
On Tuesday, Breen said DuPont will be taking a breather from such mega deals for a time while it assesses the strength of the global economy and where it should turn next. The company will retain about $4.8 billion in cash from the M&M sale following its planned expenditures though, and Breen didn’t rule out the possibility of smaller “bolt-on mergers or acquisitions.”
DuPont will also continue to look to sell its industrial strength resin Delrin product line, with a sale anticipated to be completed next year.
“We do have targets we've been interested in for quite a period of time, whether they're actionable or not is another kind of story. And they clearly would be in the pillars of the secular growth areas,” Breen told analysts, hinting those deals could be in the water treatment or industrial technology sectors.
Meanwhile, DuPont is exceeding many of those analysts’ expectations, reporting $3.3 billion in third quarter revenue Tuesday, or $100 million more than the consensus estimate, and earnings per share of 82 cents per share, or 3 cents more than consensus.
Breen said that the company has faced an extra $800 million in costs this year due to inflation, but it has offset all of that by increasing product prices. The vast majority of that cost increase has been due to historically high natural gas prices in Europe that are affecting its global manufacturing – the continent’s energy prices are astronomically high following sanctions on Russian oil and gas after it began its war in Ukraine.
“It's going to be interesting for all of us going into 2023 as we work our way through [whether to change pricing] because the commodities are definitely coming down pretty uniformly. Not crazy, but they're down 20% to 25% in many cases. So, if the natural gas thing settles out, I think we've peaked on all this inflation,” Breen said.
