DowDuPont 3-Way Split Nears Completion with Dow and Corteva Spinoff

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Sanford Bernstein analyst Jonas Oxgaard recently called the
DowDuPont

Merger and 3-Way divide "the most complicated action in the history of the company". And it is not done yet. There are still a lot of moving things and things we have to be careful about before the last piece of the deal is done on June 1.

Oxgaard's complaint is difficult to verify, but it is not far from the truth.

Legacy-Dow and Legacy-DuPont announced plans to form the world's largest chemical company 1,266 days ago. The transaction was approved 630 days later and the final split will be completed on June 1, 638 days after the approval of the merger.

The final transaction is the split of the agricultural division, called
Corteva

(ticker: CTVA). It began trading "on issue" on May 24, at an opening price of approximately $ 29 per share.

Barron recently wrote competitor Corteva
FMC

(FMC) was a simpler way to invest in the agricultural inputs sector, but it was at this point that Corteva's shares traded at $ 32 each. The stock is now trading around $ 28.50, down 11% from its Friday level. This gives the farm business a market value of approximately $ 21 billion, not counting its unfunded pension liabilities of $ 4 billion. The pension is the only instrument in Corteva's balance sheet similar to a debt. The management said Barron that the company should have very little long-term debt, since the bulk of the financial debt is related to the seasonal working capital needs of the agricultural sector.

Barron do not think investors should treat unfunded retirement obligations exactly as debts. If investors so wish, they should make accounting adjustments to all reported assumptions about pension discount rates, expected returns and expenses. It is easier and appropriate, in our view, to add 80% of the unfunded amount to the debt, which would give Corteva a market value, including financial leverage, of approximately $ 24.5 billion, or 9.4 times earnings before interest, taxes, depreciation and amortization. This is a 16% discount compared to other specialty chemical companies that Corteva will be compared.

It is attractive, the Corteva share remains interesting, but all this shows why investors should be wary of the volatility of the action Corteva. In addition, trading volume "once issued" is minimal – only about $ 5 million of Corteva shares have changed hands so far. New
Dow

(DOW), on the other hand, trades about $ 250 million in value each day.

And there is more to think than Corteva.

DowDuPont, which will become DuPont (DD), announced a merger that is expected to be completed on June 1. DowDuPont shareholders will receive 1 new DuPont share for every 3 DowDuPont shares held. This means that the price of DowDuPont action will triple, excluding the value of Corteva, when it will become DuPont. Currently, the June 1 share price would be approximately $ 65. This is not a boon to investors, however, and dividend yields will not change. The management simply adjusts the course of action to the desired level.

Current CEO of DowDuPont Ed Breen met investors on Tuesday. (Breen is the elected president of DuPont and Mark Doyle will take office as CEO on June 1). Breen reiterated DowDuPont's results conference call. He also announced his intention to sell up to 10% of DuPont's remaining portfolio.

Finally, DowDuPont also announced a $ 1 billion asset reduction in its nutrition and bioscience sector. This represents only about 1% of DowDuPont's assets and is attributable to the difficulties encountered in the bioethanol sector. (This is a minor element, but it shows how goodwill can generate unexpected losses for investors.)

There are so many things that can be difficult to follow. This should become easier when all businesses survive alone. If investors continue to sell stocks, because of the complexity or fears of global growth, there may soon be good values.

DowDuPont's stock is down 15% since April 1, when Dow split. The Dow stock is down 10% since April 1st. Excluding the now known value of Corteva's DowDuPont stock, the stock is down 20% since April 1st. Corteva is down more than 10% from its record high Friday. the
Dow Jones Industrial Average
is down 4.4% since April 1st.

Write to Al Root at [email protected]