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Tuesday, December 8, 2009

What will DuPont buy?

A week ago, at an industry conference, Citigroup chemical stocks analyst PJ Juvekar, noting how cheap industries are in this depressed market, asked DuPont Co. cfo Nick Fanandakis, "Are you looking actively to make acquisitions, and in what size?" Fanandakis' reply, from the Citi transcript:

I know how to buy: "I ran our chemicals business for about three years. And during that time period, we doubled the top line and during that same period, we divested 14 businesses and acquired five. Obviously, the acquisitions were greater than the divestitures. So I have a background in this area."

We're shopping: "When I look at the corporation as a whole, I see opportunities, as I said, for growth in three very key strategic areas for us around safety and protection, around electronics, and around ag (seeds and pesticides)."

Why? "I am not going to do an acquisition just to bulk up. I am going to do an acquisition for strategic reasons that is going to provide me technology, market access, channel access, that sort of thing... So saying that, yes, I believe there will be opportunities for acquisitions as we go forward..."

"The size would depend. I mean it could be as small as a bolt-on or it could be transformational. It really depends on the value that we believe could be achieved through the acquisition."

Would you risk your credit ratings for a deal? "We are very comfortable with the credit ratings we have today, the single A status. We have access to very low debt." But for a "transformational acquisition," one that would take DuPont into new businesses, "I would be willing, for the right strategic acquisition, to slip down a notch in credit rating for a brief period of time...

"The acquisition we would be making would be accretive from a cash standpoint, so we would look to regain that decision rather quickly. But I would not be adverse to taking a one notch down for the right acquisition that might come up for a brief period of time."

How'd that feel to bond-buyers who'd just lend DuPont $2 billion in November? "Made our hearts flutter a bit," Gimme Credit analyst Carol Levenson told clients in a report today. She noted DuPont stands to lose its drug-licensing income next year with the end of a deal for Merck to licensed and sell DuPont high blood pressure drugs Cozaar and Hyzaar.. So, "to placate equity investors and deliver on its promise of 20% compound annual earnings growth after this gold mine is played out, DuPont may indeed need totake a dramatic M&A step," Levenson warned.

More signs: Though its debt is high, the company's hoarding cash, as if preparing to buy. The stock's down 9% in the past week.
 

Posted by Joseph DiStefano @ 1:11 PM  Permalink | 3 comments
Comments   
  • 0 like this / 0 don't   •   Posted 9:59 AM, 12/09/2009
    Do other readers of PILLYDEAL$ notice during the course of the Fanandakis' interview, he repetitiously refers to the ego-centric "I"? It's "I" this, and "I" that. Hmmmmmm...Isn't the French-style DuPont bureaucracy all about TEAM-playing, corporate consensus by committee and multi-layered approval of PowerPoint presentations?...funfun..
    — funfundvierzig
  • 0 like this / 0 don't   •   Posted 11:38 AM, 12/09/2009
    The Company is hoarding cash? Of course, it has some cash on hand; DuPont Management borrowed $2 billion only a few days ago, and it is not paying wages to over 10,000 hapless DuPont and contract employees, whose jobs were purged, careers killed over the past 12 months...including 260 at the ill-fated Marshall Lab....funfun..
    — funfundvierzig
  • 0 like this / 0 don't   •   Posted 1:00 PM, 12/09/2009
    By DuPont Management's own optimistic estimates, DuPont will LOSE $750 million to $800 million in Pharma pre-tax operating income in 2010, down from $1.1 billion in 2008! In the first nine months of this year 2009, Pharma PTOI accounted for nearly a third of all PTOI from DuPont business segments ($790 million out of $2542 million). Expiring drug patents are a BIG BLACK HOLE for this troubled chemical conglomerate, a hole becoming increasingly difficult to re-fill with income from other sources...funfun..
    — funfundvierzig


3 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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