DWDP - Dow DuPont

[klarmaniac]

Sorry if there's already a board for DOW, I searched but didn't see one. I'm interested in both overall opinions on DOW and specific opinions on the upcoming exchange offer:
http://www.dow.com/news/press-releases/dow%20initiates%20exchange%20offer%20for%20chlorine%20value%20chain%20businesses
Thanks

[John Hjorth]

European Commision: Mergers: Commission clears merger between Dow and DuPont, subject to conditions.

[ugadawg_98]

Anyone involved here in this slow-motion breakup play? I’ve been opportunistically adding in the high 50s to low 60s over the past 18 months.

Thoughts?

[cameronfen]

Anyone involved here in this slow-motion breakup play? I’ve been opportunistically adding in the high 50s to low 60s over the past 18 months.

Thoughts?

Didn't look closely but the agriculture division goes from 4 players controlling 95% of the corn, soybeans and cotton traits in the US, to two players after this merger and the Monsanto Bayer merger. 

[wisowis]

I have some $90 Jan 2020 call options.

Here is the napkin thesis from the Third Point Q1 2018 letter:

DWDP continues to be one of the fund’s largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breen’s plan to create value. Despite a series
of positive developments following the merger’s close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDP’s three future spins (Materials Co, Specialty Co, and Ag Co) and three publicly traded
peers: LyondellBasell, 3M, and Monsanto. Consensus 2020 EBITDA for DWDP is $23 billion
– coincidentally the sum of 2020 estimates for LYB, MMM and MON is nearly identical at
$22.5 billion. However, the combined enterprise value for these three companies is $234
billion, about 40% higher than DWDP’s current enterprise value of $167 billion. Simply
applying a similar EV to DWDP (which we believe is justified) implies a stock price of $92,
nearly 50% higher than current levels. We expect this value gap to close over the next 12
months as synergies are realized and the three spin‐offs are finalized.

[peterHK]

They're cheap, and Breen has a lot of levers he can pull to increase value. They're waiting on share buybacks for the rating agencies to inform them as to how much cash needs to be at the spinco's to maintain investment grade ratings.

I like the Dec 2020 $70 LEAP's hear as options tend to misprice these sort of spin scenarios.

[BG2008]

I have some $90 Jan 2020 call options.

Here is the napkin thesis from the Third Point Q1 2018 letter:

DWDP continues to be one of the fund’s largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breen’s plan to create value. Despite a series
of positive developments following the merger’s close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDP’s three future spins (Materials Co, Specialty Co, and Ag Co) and three publicly traded
peers: LyondellBasell, 3M, and Monsanto. Consensus 2020 EBITDA for DWDP is $23 billion
– coincidentally the sum of 2020 estimates for LYB, MMM and MON is nearly identical at
$22.5 billion. However, the combined enterprise value for these three companies is $234
billion, about 40% higher than DWDP’s current enterprise value of $167 billion. Simply
applying a similar EV to DWDP (which we believe is justified) implies a stock price of $92,
nearly 50% higher than current levels. We expect this value gap to close over the next 12
months as synergies are realized and the three spin‐offs are finalized.

Isn't the $90 a bit too out of the money.  I get it that you're only paying like $1-2 for that call.  Wouldn't the ATM Jan 2020 call be more interesting (granted, less upside in terms of ROIC)?  When you get to $90, you've made 250%. 

[gokou3]

I have some $90 Jan 2020 call options.

Here is the napkin thesis from the Third Point Q1 2018 letter:

DWDP continues to be one of the fund’s largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breen’s plan to create value. Despite a series
of positive developments following the merger’s close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDP’s three future spins (Materials Co, Specialty Co, and Ag Co) and three publicly traded
peers: LyondellBasell, 3M, and Monsanto. Consensus 2020 EBITDA for DWDP is $23 billion
– coincidentally the sum of 2020 estimates for LYB, MMM and MON is nearly identical at
$22.5 billion. However, the combined enterprise value for these three companies is $234
billion, about 40% higher than DWDP’s current enterprise value of $167 billion. Simply
applying a similar EV to DWDP (which we believe is justified) implies a stock price of $92,
nearly 50% higher than current levels. We expect this value gap to close over the next 12
months as synergies are realized and the three spin‐offs are finalized.

I have just taken a 2-minute look but how is EV = $167B?  The market cap is close to that number plus there's another ~$60B of ST+LT debt (per Yahoo Finance).

[peterHK]

I have some $90 Jan 2020 call options.

Here is the napkin thesis from the Third Point Q1 2018 letter:

DWDP continues to be one of the fund’s largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breen’s plan to create value. Despite a series
of positive developments following the merger’s close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDP’s three future spins (Materials Co, Specialty Co, and Ag Co) and three publicly traded
peers: LyondellBasell, 3M, and Monsanto. Consensus 2020 EBITDA for DWDP is $23 billion
– coincidentally the sum of 2020 estimates for LYB, MMM and MON is nearly identical at
$22.5 billion. However, the combined enterprise value for these three companies is $234
billion, about 40% higher than DWDP’s current enterprise value of $167 billion. Simply
applying a similar EV to DWDP (which we believe is justified) implies a stock price of $92,
nearly 50% higher than current levels. We expect this value gap to close over the next 12
months as synergies are realized and the three spin‐offs are finalized.

I have just taken a 2-minute look but how is EV = $167B?  The market cap is close to that number plus there's another ~$60B of ST+LT debt (per Yahoo Finance).

This was probably written in March when shares were at ~$61.

They have $34bn in debt, $10bn in cash, and ~$18bn in pension liabilities, so net that's only ~$42bn in debt, and they're generating a lot of cash so that will shrink quickly. 

[ugadawg_98]

Starting to move up. I had started accumulating in high $50s and stopped around $65. Got nice-sized position, but wanted more.

Catalysts and positive news flow should be coming, but can’t make myself pay up.