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General Category => Investment Ideas => Topic started by: klarmaniac on September 11, 2015, 12:38:07 PM

Title: DWDP - Dow DuPont
Post by: klarmaniac on September 11, 2015, 12:38:07 PM
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 :)
Title: Re: DWDP - Dow DuPont
Post by: John Hjorth on March 27, 2017, 04:47:17 AM
European Commision: Mergers: Commission clears merger between Dow and DuPont, subject to conditions (http://europa.eu/rapid/press-release_IP-17-772_en.htm).
Title: Re: DWDP - Dow DuPont
Post by: ugadawg_98 on July 08, 2018, 02:28:37 PM
Anyone involved here in this slow-motion breakup play? Iíve been opportunistically adding in the high 50s to low 60s over the past 18 months.

Thoughts?
Title: Re: DWDP - Dow DuPont
Post by: cameronfen on July 08, 2018, 06:03:30 PM
Anyone involved here in this slow-motion breakup play? Iíve 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. 
Title: Re: DWDP - Dow DuPont
Post by: wisowis on July 08, 2018, 07:54:06 PM
I have some $90 Jan 2020 call options.

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

Quote
DWDP continues to be one of the fundís largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breenís plan to create value. Despite a series
of positive developments following the mergerís close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDPís 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
Ė 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 DWDPís 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.
Title: Re: DWDP - Dow DuPont
Post by: peterHK on July 09, 2018, 07:57:37 AM
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.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on July 09, 2018, 08:54:01 AM
I have some $90 Jan 2020 call options.

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

Quote
DWDP continues to be one of the fundís largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breenís plan to create value. Despite a series
of positive developments following the mergerís close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDPís 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
Ė 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 DWDPís 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%. 
Title: Re: DWDP - Dow DuPont
Post by: gokou3 on July 09, 2018, 11:15:56 AM
I have some $90 Jan 2020 call options.

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

Quote
DWDP continues to be one of the fundís largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breenís plan to create value. Despite a series
of positive developments following the mergerís close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDPís 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
Ė 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 DWDPís 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).
Title: Re: DWDP - Dow DuPont
Post by: peterHK on July 09, 2018, 12:10:01 PM
I have some $90 Jan 2020 call options.

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

Quote
DWDP continues to be one of the fundís largest positions. We remain confident in the
underlying business fundamentals and CEO Ed Breenís plan to create value. Despite a series
of positive developments following the mergerís close last August, the discount to intrinsic
value has widened. Several prominent sell‐side analysts have noted the similarities between
DWDPís 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
Ė 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 DWDPís 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. 
Title: Re: DWDP - Dow DuPont
Post by: ugadawg_98 on July 27, 2018, 08:56:23 AM
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 canít make myself pay up.
Title: Re: DWDP - Dow DuPont
Post by: gfp on July 27, 2018, 09:22:19 AM
Did the stock trade in the high 50's?

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 canít make myself pay up.
Title: Re: DWDP - Dow DuPont
Post by: ugadawg_98 on July 28, 2018, 09:42:25 AM
When I started buying the old DD shares in 2017, I was getting an effective cost in the new shares in the $50s (DD converted to DWDP at a 1.28 ratio, if I recall). Subsequent purchases were more expensive.

I think itís still very cheap, I just have a mental block about paying successively higher prices. On a break to low 60s, Iíd add more, but absent some market turmoil, Iím not sure weíll get there. Positive catalysts getting closer.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on July 29, 2018, 05:32:50 AM
Sent chemicals and early cycle business? I rarely have seen large gains with chemicals late in the cycle. I have a soft spot for BASF (BAS.DE). The first stock I ever ďownedĒ via long term rights (Optionsscheine).
Title: Re: DWDP - Dow DuPont
Post by: peterHK on October 10, 2018, 06:34:15 PM
Anybody else think this is cheap here?
Title: Re: DWDP - Dow DuPontik
Post by: Spekulatius on October 11, 2018, 03:57:22 AM
Anybody else think this is cheap here?

10.5x EBITDA for a chemical business seems high. Even businessmen in protected niches like paint, trade at 11x and DWDP has a lotmof cyclical components. Peer EMN trades at 8.3x EBITDA and peer BASF at ~7x (óprobably a bit high ex their E&P and refinery business). The only business line within DWDP that deserves a higher multiple is Agro, but it seems to be a small part of the overall company.
Title: Re: DWDP - Dow DuPontik
Post by: Liberty on October 11, 2018, 06:09:54 AM
Anybody else think this is cheap here?

10.5x EBITDA for a chemical business seems high. Even businessmen in protected niches like paint, trade at 11x and DWDP has a lotmof cyclical components. Peer EMN trades at 8.3x EBITDA and peer BASF at ~7x (óprobably a bit high ex their E&P and refinery business). The only business line within DWDP that deserves a higher multiple is Agro, but it seems to be a small part of the overall company.

I think you're overlooking the specialty businesses, which will be what remain after they spin off the two other divisions.
Title: Re: DWDP - Dow DuPontik
Post by: peterHK on October 11, 2018, 06:43:17 AM
Anybody else think this is cheap here?

10.5x EBITDA for a chemical business seems high. Even businessmen in protected niches like paint, trade at 11x and DWDP has a lotmof cyclical components. Peer EMN trades at 8.3x EBITDA and peer BASF at ~7x (óprobably a bit high ex their E&P and refinery business). The only business line within DWDP that deserves a higher multiple is Agro, but it seems to be a small part of the overall company.

You're also forgetting that EBITDA is low because Dow in particular was poorly run. Almost every spin out from Dow goes on to massively improve margins , and Ed Breen has thus far been very good at delivering promised synergies pre-spin.

The other thing to remember is that capital intensity is going down because they're focusing more on brownfield projects, debottlenecking etc. rather than major capex, and that should translate into a higher justified EV/EBITDA multiple. I think combined DWDP can do ~52% FCF conversion from EBITDA whereas BASF is closer to 40% for instance.

The final thing you're forgetting is they have significant below the line earnings from affiliates that don't show in EBITDA, so you actually can't use EBITDA unless you're doing SOTP and then adding those affiliate earnings in. LTM that number was $1bn, so at say 8x earnings because they're commodity related, that's $8bn of value (or a little less than $4/share) that doesn't accrue to an EV/EBITDA valuation.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on October 11, 2018, 10:00:25 AM
Thanks for above input, this is highly appreciated. I bought some BASFY today since I know this company well.
Title: Re: DWDP - Dow DuPont
Post by: Liberty on October 11, 2018, 10:31:34 AM
Breen has shown with Tyco that he knows how to clean up badly management companies and get the value out (divestitures, spin offs, refocusing R&D and capex, etc). It'll be interesting to see what he can do with these assets. The synergies so far are already pretty impressive.
Title: Re: DWDP - Dow DuPont
Post by: Liberty on October 22, 2018, 01:24:43 PM
http://www.dow-dupont.com/news-and-media/press-release-details/2018/DowDuPont-Announces-Filing-of-Initial-Form-10-Registration-Statement--for-Corteva-Agriscience/default.aspx

http://d18rn0p25nwr6d.cloudfront.net/CIK-0001666700/c19dfce0-5b14-4d89-a622-85da979e872b.pdf

http://www.dow-dupont.com/news-and-media/press-release-details/2018/DowDuPont-Statement-on-Market-Activity/default.aspx
Title: Re: DWDP - Dow DuPont
Post by: peterHK on October 22, 2018, 01:54:02 PM
http://www.dow-dupont.com/news-and-media/press-release-details/2018/DowDuPont-Announces-Filing-of-Initial-Form-10-Registration-Statement--for-Corteva-Agriscience/default.aspx

http://d18rn0p25nwr6d.cloudfront.net/CIK-0001666700/c19dfce0-5b14-4d89-a622-85da979e872b.pdf

http://www.dow-dupont.com/news-and-media/press-release-details/2018/DowDuPont-Statement-on-Market-Activity/default.aspx

Note that the write down doesn't affect guidance for the year. I think that was already priced in by the market is now killing anything with "the cycle" attached to it (semis, homebuilders, DWDP etc.). DWDP has headwinds now, but I think its incredibly undervalued here given catalysts, synergies etc.
Title: Re: DWDP - Dow DuPont
Post by: longlake95 on October 22, 2018, 03:43:35 PM
Agreed. Iím adding to the common and the leaps here, but itís not been a fun ride. I have a lot of admiration for Ed Breen.

Title: Re: DWDP - Dow DuPont
Post by: Liberty on November 01, 2018, 03:41:15 AM
Q3:

http://s21.q4cdn.com/813101928/files/doc_financials/2018/2018/Q3/3Q18-Earnings-Release.pdf

Quote
DowDuPont Reports Third Quarter 2018 Results
ē GAAP EPS from Continuing Operations of $0.21; Adj. EPS Increases 35% to $0.74
ē GAAP Net Income from Continuing Operations of $535MM; Op. EBITDA Up 19% to $3.8B
ē Net Sales Up 10% to $20.1B; Volume and Local Price Gains in All Divisions and All Regions
ē Announces New $3B Stock Buyback Program, Expected to be Complete by First Spin
ē Increases Cost Synergy Target to $3.6B; Raises Expected YoY Savings to $1.5B
ē Reaffirms FY18 Adj. EPS Guidance: Up Low-20s Percent

I posted a few things about it in this thread:

https://twitter.com/LibertyRPF/status/1057984861657579520
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on February 04, 2019, 06:47:41 AM
Stock is near lows after a disappointing Q4 and Y2019. My thoughts on this is that the ďMaterialĒ ( polymers) business could be rated downwards, and the other business ( specialty,  agrochemical/ seeds) and Electronics/ imaging could be rated upwards.
Their plastics/material business has done cost advantages from feedstocks ( cheap NG), but itís probably overearning right now. The valuation premium for the overall company relative to BASF is mostly gone. I think if getting in, but the most interesting time may be after the spins occurred.
Title: Re: DWDP - Dow DuPont
Post by: Liberty on February 12, 2019, 08:21:05 AM
Brand new in-depth two-part writeup about DWDP at Scuttleblurb (subscription required):

https://www.scuttleblurb.com/dwdp1/

https://www.scuttleblurb.com/dwdp2/
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on March 29, 2019, 05:57:02 AM
Anyone looking into this? The new Dow shares trade already on a when issued basis for around $50/ share. Since one will get 1 Dow share for 3 DWDP shares , thatís about $17 in value for each DWDP share or ( including JV EBITDA) roughly 5x EV/EBITDA based on Y2018 numbers. Company guided down significantly today at 20% lower EBITDA for the start of Y2019, so draw your own conclusion.
No position yet, but looking closely.
Title: Re: DWDP - Dow DuPont
Post by: Liberty on March 29, 2019, 07:19:37 AM
Anyone looking into this? The new Dow shares trade already on a when issued basis for around $50/ share. Since one will get 1 Dow share for 3 DWDP shares , thatís about $17 in value for each DWDP share or ( including JV EBITDA) roughly 5x EV/EBITDA based on Y2018 numbers. Company guided down significantly today at 20% lower EBITDA for the start of Y2019, so draw your own conclusion.
No position yet, but looking closely.

It seems pretty cheap if you trust that Breen will execute on the synergies and margin improvements, and that the new incentives for better ROIC and cutting low-return investments will work. Of course, large portions of the company are cyclical and there will be down (and up) quarters like this...
Title: Re: DWDP - Dow DuPont
Post by: Liberty on April 01, 2019, 04:08:19 AM
DOW spin is today:

http://www.dow-dupont.com/news-and-media/press-release-details/2019/DowDuPont-Announces-Effectiveness-of-the-Form-10-Registration-Statement-for-New-Dow/default.aspx
Title: Re: DWDP - Dow DuPont
Post by: walkie518 on April 01, 2019, 01:32:06 PM
not sure where to think the value will be? 

Dow itself is less appealing since the stock is rising as a stand-alone already and is included in all of the indexes? 

likely there will be forced selling of DWDP and the ag business...this should create more value for buyers at the bottom, but would I want to own ag chem biz?  Would I rather own specialty chem biz?

my feeling is that Dow itself might be the best horse though pricing will and does reflect even at a lower EBITDA multiple?
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on April 01, 2019, 03:15:24 PM
not sure where to think the value will be? 

Dow itself is less appealing since the stock is rising as a stand-alone already and is included in all of the indexes? 

likely there will be forced selling of DWDP and the ag business...this should create more value for buyers at the bottom, but would I want to own ag chem biz?  Would I rather own specialty chem biz?

my feeling is that Dow itself might be the best horse though pricing will and does reflect even at a lower EBITDA multiple?

DOW looks cheap based on Y2018 but the way the earnings trend go, the multiple may not be that great, or at least not better than HUN or EMN any more. The AG business results look very messing, I am not sure how value it. Also keep in mind that if Roundup is really on its way out due to cancer litigation, then DWDP roundup ready seed traits will be affected too, at least they will be useless and possibly considered inferior since there is possibility that farmers still use them with Roundup, especially in foreign countries.
Title: Re: DWDP - Dow DuPont
Post by: vinod1 on April 02, 2019, 07:12:11 AM
Are the spin-offs planned right from the beginning of the merger of Dow and DuPont? Or are they a reaction to issues with the merger?

I have not followed this and just wanted to know the background. Can anyone help?

Thanks

Vinod
Title: Re: DWDP - Dow DuPont
Post by: gfp on April 02, 2019, 07:21:19 AM
Yes, planned from the beginning.  Not even sure the merger would have been allowed without the separation plan

Are the spin-offs planned right from the beginning of the merger of Dow and DuPont? Or are they a reaction to issues with the merger?

I have not followed this and just wanted to know the background. Can anyone help?

Thanks

Vinod
Title: Re: DWDP - Dow DuPont
Post by: vinod1 on April 02, 2019, 07:41:22 AM
Yes, planned from the beginning.  Not even sure the merger would have been allowed without the separation plan

Are the spin-offs planned right from the beginning of the merger of Dow and DuPont? Or are they a reaction to issues with the merger?

I have not followed this and just wanted to know the background. Can anyone help?

Thanks

Vinod

Thanks gfp!
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on May 12, 2019, 06:03:51 PM
Wanted to bump this one, since at around $31.5 and probably cheaper tomorrow, the sum of Corteva (seeds and AG chemicals) and the stub DuPont (special materials and chemicals) trades at around 9.5-10x EBITDA. I like them both. Corteva can be compared with Monsanto befor the Bayer merger (not quite the same quality, but close), which was bought for 16x EBITDA and stub DuPont to MMM. So, while not optical cheap, it sum of both trades at a large discount to peers.

There are concerns with the impact of the trade war on business, but this applies to comps too. the positive is that both DuPont and Corteva are only half way through the restructuring from the combination of DuPont and Dow, so I expect more synergies dropping to the bottom line. On top of that, we get hopefully the spin-off dynamics. I am planning to o bump this up a major (or two major) position on price weakness.
Title: Re: DWDP - Dow DuPont
Post by: ander on May 13, 2019, 12:35:32 PM
Wanted to bump this one, since at around $31.5 and probably cheaper tomorrow, the sum of Corteva (seeds and AG chemicals) and the stub DuPont (special materials and chemicals) trades at around 9.5-10x EBITDA. I like them both. Corteva can be compared with Monsanto befor the Bayer merger (not quite the same quality, but close), which was bought for 16x EBITDA and stub DuPont to MMM. So, while not optical cheap, it sum of both trades at a large discount to peers.

There are concerns with the impact of the trade war on business, but this applies to comps too. the positive is that both DuPont and Corteva are only half way through the restructuring from the combination of DuPont and Dow, so I expect more synergies dropping to the bottom line. On top of that, we get hopefully the spin-off dynamics. I am planning to o bump this up a major (or two major) position on price weakness.

Do you think worthwhile to wait until the Corteva spin is done or does not matter at this stage?
Title: Re: DWDP - Dow DuPont
Post by: dwy000 on May 13, 2019, 02:01:01 PM
Wanted to bump this one, since at around $31.5 and probably cheaper tomorrow, the sum of Corteva (seeds and AG chemicals) and the stub DuPont (special materials and chemicals) trades at around 9.5-10x EBITDA. I like them both. Corteva can be compared with Monsanto befor the Bayer merger (not quite the same quality, but close), which was bought for 16x EBITDA and stub DuPont to MMM. So, while not optical cheap, it sum of both trades at a large discount to peers.

There are concerns with the impact of the trade war on business, but this applies to comps too. the positive is that both DuPont and Corteva are only half way through the restructuring from the combination of DuPont and Dow, so I expect more synergies dropping to the bottom line. On top of that, we get hopefully the spin-off dynamics. I am planning to o bump this up a major (or two major) position on price weakness.

Do you feel this is cheap intrinsically at this price or just cheap relative to the comps?  I haven't dug in for a long long time but just skimming, it looks like they basically just cover dividends from a cash flow basis (granted this is before all the synergy cost savings kick in).  Curious as to whether the comps are just overpriced or this is a solid return from a cash flow/growth perspective on it's own.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on May 13, 2019, 03:18:30 PM
Wanted to bump this one, since at around $31.5 and probably cheaper tomorrow, the sum of Corteva (seeds and AG chemicals) and the stub DuPont (special materials and chemicals) trades at around 9.5-10x EBITDA. I like them both. Corteva can be compared with Monsanto befor the Bayer merger (not quite the same quality, but close), which was bought for 16x EBITDA and stub DuPont to MMM. So, while not optical cheap, it sum of both trades at a large discount to peers.

There are concerns with the impact of the trade war on business, but this applies to comps too. the positive is that both DuPont and Corteva are only half way through the restructuring from the combination of DuPont and Dow, so I expect more synergies dropping to the bottom line. On top of that, we get hopefully the spin-off dynamics. I am planning to o bump this up a major (or two major) position on price weakness.

Do you feel this is cheap intrinsically at this price or just cheap relative to the comps?  I haven't dug in for a long long time but just skimming, it looks like they basically just cover dividends from a cash flow basis (granted this is before all the synergy cost savings kick in).  Curious as to whether the comps are just overpriced or this is a solid return from a cash flow/growth perspective on it's own.

Itís more based on comps than on being cheap in absolute terms. I think it would need to mature post the spinoff to really look cheap. The market assigns a relatively high multiple to a business that isnít very economically sensitive and has a long growth runaway, albeit at moderate rates. Seed companies for example had high multiples as long as long as I can remember.

As far as waiting for the Corteva spin-off, it depends on individual preference. I am fine holding both, so I have no problem buying them together.

Dow is interesting too, albeit more cyclical. Their earnings are dependent on the differential between crude and NG, which tend to be higher when crude is higher. They are also more dependent on the economic cycle. I prefer DWDP, but I could see myself buying into DOW as well. i would regard it as a cyclical income stock. They seem to handle the recent margin pressure better than competitors, which seem to support the management thesis that they are a low cost producer.
Title: Re: DWDP - Dow DuPont
Post by: Liberty on May 21, 2019, 06:01:52 AM
https://www.prnewswire.com/news-releases/dupont-to-present-at-electrical-products-group-conference-300853587.html

"Breen will note that DuPont intends to announce a $2 billion share repurchase program, subject to Board of Director approval, shortly after its transition to an independent company upon the separation of its specialty products and agriculture businesses effective June 1, 2019.  The company intends to make purchases under the plan during calendar 2019."
Title: Re: DWDP - Dow DuPont
Post by: Liberty on May 24, 2019, 12:24:16 PM
Transcript of Breen presentation on May 21st:

http://s21.q4cdn.com/813101928/files/doc_downloads/2019/05/EPG-Transcript.pdf
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on May 24, 2019, 05:47:10 PM
Transcript of Breen presentation on May 21st:

http://s21.q4cdn.com/813101928/files/doc_downloads/2019/05/EPG-Transcript.pdf

Awesome. I really like the way they are benchmarking themselves against competitors - very evident specifically in the Dow presentation. It has become one of my larger positions recently and I think itís a good example to buy a good company with great management at a very fair price.
Title: Re: DWDP - Dow DuPont
Post by: colinwalt on May 25, 2019, 05:59:49 AM
Loeb presentation from May 2017

https://www.thirdpoint.com/portfolio-updates/portfolio-update-structuring-the-new-dowdupont-to-maximize-shareholder-value/
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on May 31, 2019, 04:14:55 PM
Transcript of BreenĎs presentation of the new DuPont Company.

Some really interesting tidbits about Dupontís end markets (automotive, cell phones), capital allocation, management incentives, benchmarking etc.  Pretty low key and makes a lot of sense to me.  was with him on some of the Tyco spinoffs and I like this setup even better. I added to CVTA WI and even bought a first of DOW today. I pen already DWDP, which will disintegrate into CVTA and DD next week. I like them all.

http://s21.q4cdn.com/813101928/files/doc_downloads/transcript/2019/Bernstein-Conference-Transcript.pdf (http://s21.q4cdn.com/813101928/files/doc_downloads/transcript/2019/Bernstein-Conference-Transcript.pdf)
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on June 03, 2019, 11:14:59 PM
DuPont spiked 18% today. I don't think I can remember a $50bn company spiking 18% in one day without it reporting earnings or other fundamental news. 
Title: Re: DWDP - Dow DuPont
Post by: Liberty on June 04, 2019, 03:10:06 AM
DuPont spiked 18% today. I don't think I can remember a $50bn company spiking 18% in one day without it reporting earnings or other fundamental news.

Corteva was spun off. Lots of investors apparently sold the spin and bought the remainco.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on June 04, 2019, 06:36:02 AM
DuPont spiked 18% today. I don't think I can remember a $50bn company spiking 18% in one day without it reporting earnings or other fundamental news.

Corteva was spun off. Lots of investors apparently sold the spin and bought the remainco.

Yeah weird trading - CVTA might be the bargain here- lots of opportunity to improve the margins. DD almost closed the valuation gap to MMM. The spike in DD shareprice from $72 to $76 towards the end of the trading session seem to be when the machines took over.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on August 04, 2019, 06:18:13 AM
The Q2 results are out for the remainco DD and they are a bit ho hum. While they are doing a great job on the margin end, the demand side looks not so great. Earning estimate is $3.8 so for a $69 stock, this isn’t exactly cheap. They do own some great high margin business (EBITDA margins >25%) and Capex needs are moderate , so it’d  is clearly worth following. DD‘s closest pest is MMM and I think it still trades at a modest discount to MMM.

I sold my DD and also CTVA stock a while ago.  Made some bucks on each. The numbers for both companies came in below my expectations, probably diente stand-alone costs (which weren’t clear based on their early investor presentations.
https://s23.q4cdn.com/116192123/files/doc_financials/2019/2019/q2/2019-08-01-2Q19-Earnings-Final.pdf (https://s23.q4cdn.com/116192123/files/doc_financials/2019/2019/q2/2019-08-01-2Q19-Earnings-Final.pdf)
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on August 06, 2019, 10:16:15 AM
The Q2 results are out for the remainco DD and they are a bit ho hum. While they are doing a great job on the margin end, the demand side looks not so great. Earning estimate is $3.8 so for a $69 stock, this isnít exactly cheap. They do own some great high margin business (EBITDA margins >25%) and Capex needs are moderate , so itíd  is clearly worth following. DDĎs closest pest is MMM and I think it still trades at a modest discount to MMM.

I sold my DD and also CTVA stock a while ago.  Made some bucks on each. The numbers for both companies came in below my expectations, probably diente stand-alone costs (which werenít clear based on their early investor presentations.
https://s23.q4cdn.com/116192123/files/doc_financials/2019/2019/q2/2019-08-01-2Q19-Earnings-Final.pdf (https://s23.q4cdn.com/116192123/files/doc_financials/2019/2019/q2/2019-08-01-2Q19-Earnings-Final.pdf)

I think the $3.8 per share of EPS is a bit misleading in that the D&A is about 2x of what the maintenance Cap Ex is.  D&A is $2bn while Main Cap ex is about $1bn.  It acts as a tax shield until the amortization of intangibles run out in probably 10 years.  I've looked at Goldman's model and I generally come to the same conclusion.

 2020
$2.8 to $2.9 billion of NI
$2.0-2.1 billion of D&A add back
Less $1 bn of Cap Ex
$3.9 to 4.0 billion of FCF

I have a shares outstanding of 749 and should get down to about 710-715 due to buybacks on year end 2020. 

So $5.5 per share of FCF give or take.  I think that the $3.8 per share includes excess D&A.  I believe that number backs out the integration cost etc.  But it doesn't make adjustments for the excess amortization of intangibles.  The excess intangible is largely due to the Dow Dupont Merger and it is now acting as a tax shield for the next 10-15 years.  But there is a $1 billion delta between the FCF and their adjusted figure.  Would love feedbacks. 

At a $5.5 per share of FCF figure, this is trading at 12x next year FCf per share.  18x is likely fairly valued for guys like us.  But 12x is quite cheap.  One thing that I have come to appreciate in recent years is that with very good companies, you kind of have to skate to where the puck is.  With the merger and split/spin off, there are lots of moving parts and share buybacks can dramatically increase value.

If we were to underwrite this name to 2.5 years out to 2021, we wind up with share count in the 700 shares range a $4bn of FCF.  That's $5.7 per share of FCF.  An 18 to 22x multiple would imply a $102 to $114 share price.  From today's $66 stock price, it's a nice 15-22% IRR over 2.5 years.  If the market re-rates the stock to 18-22x multiple by 2021, you wind up with IRRs in the 20-30% range.  Even a 15x FCF multiple by year end 2021 generates a 12% IRR. 

Would love feedbacks.       

Title: Re: DWDP - Dow DuPont
Post by: BG2008 on August 06, 2019, 10:19:46 AM
That $500mm of additional standalone cost is quite annoying.  The data was very much misrepresented prior to the spin.  Applying a 20% tax rate equates it to about $400mm.  At 750mm shares today, that's about $0.53 of EPS which at 18x is almost $9.54 of value.   Super annoyed by that adjustment and the way they represented the data.  That alone was 14% of the value of today's price of $66 per share.   
Title: Re: DWDP - Dow DuPont
Post by: Liberty on August 06, 2019, 01:38:05 PM
https://finance.yahoo.com/news/dupont-considers-sale-biosciences-unit-182425104.html

"DuPont Considers Sale of Biosciences Unit That Could Fetch $20 Billion"
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on August 06, 2019, 03:38:18 PM
That $500mm of additional standalone cost is quite annoying.  The data was very much misrepresented prior to the spin.  Applying a 20% tax rate equates it to about $400mm.  At 750mm shares today, that's about $0.53 of EPS which at 18x is almost $9.54 of value.   Super annoyed by that adjustment and the way they represented the data.  That alone was 14% of the value of today's price of $66 per share.   

Agreed on standalone cost. It is also quite higher for CTVA (the Ag chem sister company). i think you are correct about the amortization not been taken into account. They actually split the amortization into two parts apparently , the regular amortization (which isnít backed out and runs at about $1B/ year) and a merger related amortization ( $199M last quarter), which is backed out /accounted for in the operating earnings bridge. So, that makes the valuation metrics way more appealing.


These numbers are really a mess. They even published a pro forma balance sheet in the last 10-q, what we are still numbers that include Corteva (sincerity was spin off in the middle of he quarter)
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on August 06, 2019, 04:03:06 PM
https://finance.yahoo.com/news/dupont-considers-sale-biosciences-unit-182425104.html

"DuPont Considers Sale of Biosciences Unit That Could Fetch $20 Billion"

A $20 billion sale would equate to a roughly 13.5x EBITDA assuming a 2018 EBITDA of $1,475 ($1,600mm less $125mm) of standalone cost.  This multiple is higher than the current multiple of 10.8x EV/EBITDA.  Chemicals across the board have experienced macro headwinds in the first half of 2019.  Univar, Dupont, MMM
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on November 04, 2019, 06:39:47 AM
I think the DuPont business deserves a closer look and I would love feedback from people who work in the specialty chemical business.  Across the board, all chemical businesses have been hurt by 1-3% declining volume.  MMM is down 30% from its peak.  It's amazing the multiples that the market is willing to pay when they have a up 3-4% volume year with a up 7-8% FCF/year versus a year when earnings falls due.  It's all part of running a business.  It's the same company making the same products.  Quarterly and yearly results really drives prices.   

I think they can get to a 700mm share count by year end next year while paying their 2% dividend. $2.8bn share buyback between now and year end 2020 divided by $70/share equals 40mm shares.   The return on capital (EBIT over net working capital + net PP&E) is about 35% by my estimate.  $13.8bn for the capital and EBIT is $4.8bn to $5.0bn.  I use $5.8 to $6.0bn of EBITDA less $1bn of maintenance cap ex.  The long term return on unlevered capital (Joel Greenblatt's method) is 35-36%.  As they shed some non-core assets over time, this metric will continue to rise. 

So we have a 35% return on capital business that should grow at GDP + 2% into the foreseeable future (not every year, but the norm, not a secular declining company) that has shown the ability to hold or raise prices by 1-3% even when volume declines in 2019 trading for 12.4x 2020 FCF.  MMM is trading for 19-20x.  All the specialty chemical names are in the dog house this year because volume is down 1-3% across the board.  There is also the optionality that they further spinoff or sell some of their division.  The nutritional and bio science division is rumored to be sold.

I think there are 2 reason why this $50bn company is cheap and available.  First, volume is down 1-3% this year.  Second, there is a lot of noise.  There is a lot of D&A that you have to parse out before you get to true FCF.   

Other thoughts welcome.   
Title: Re: DWDP - Dow DuPont
Post by: rogermunibond on November 04, 2019, 07:57:58 AM
That's a good write up of the bull case.  The nutrition business could fetch $15-20B
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on November 04, 2019, 12:13:42 PM
Any speculation that this might be the "new and undisclosed" Ackman long? Personally I think it fits. Wish I had done DD on DD a little sooner. Nice bump the past few days.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on November 04, 2019, 04:17:31 PM
Cheap is relative. In the last, you could buy similar companies often for 9x EBITDA. DD has some real great business ( chip manufacturing consumables ). I bought some after the earning release, which was better then expected without thr stock reacting and sold today. Playing for small moves here, but it starts to add up.

One concern I have with Breen is that tends to scrimp on R&D somewhat. Same was the case with one Tyco spin-off I was involved with (Covidien).
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on November 15, 2019, 03:11:26 PM
https://finance.yahoo.com/news/dupont-movie-very-damaging-analyst-190338922.html

Well, just as pretty much everything IMO(on a non trading basis, and with the exception of like 2 names) has suddenly become "short term expensive", a holiday gift comes along!

I suppose I may look to begin accumulating a DD position starting 11/21!
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on November 15, 2019, 05:05:45 PM
https://finance.yahoo.com/news/dupont-movie-very-damaging-analyst-190338922.html

Well, just as pretty much everything IMO(on a non trading basis, and with the exception of like 2 names) has suddenly become "short term expensive", a holiday gift comes along!

I suppose I may look to begin accumulating a DD position starting 11/21!

Also there are some lawsuits between the DuPont spinoffs, this affects primarily CC, then CTVA and DD. (If CC were unable to pay or unexpectedly win a lawsuit to keep DD and CTVA on the hook)

At least, I know now why CTVA and DD are down ~3.5% today. FWIW, I did buy back some DC shares I sold for $71 and change just a few days ago. The trading in these tin ties with virtually no relevant news makes little sense to me for quite some time, but it does seem easy to take advantage of this. Has DD and CTVA suddenly become a trading sardines for Robinhood Account holders? It almost seems that way.
Title: Re: DD - DuPont de Nemours
Post by: Schwab711 on December 09, 2019, 07:01:55 AM
I started looking at DD and I'm not sure it's all that good of a deal even if the nutrition business sells for $25b. The remaining DD business will have EBITDA of ~$4.5b in 2020. Assuming the $25b is used to pay off all debt, FCF will likely be in the neighborhood of $2.5b/yr. It looks like the remaining DD business is a 10% ROIC business (I'm not if 35% above was tangible ROE or just nutrition). At that point, 10x EBITDA or 12x-14x FCF with a normal capital structure works out to approximately $45b EV (vs a current $39b EV, assuming a $25b sale of the nutrition business). Depending on the future capital structure, there might be some upside but at least in my initial look, I don't see a ton of value in DD.
Title: Re: DD - DuPont de Nemours
Post by: BG2008 on December 09, 2019, 08:21:35 AM
I started looking at DD and I'm not sure it's all that good of a deal even if the nutrition business sells for $25b. The remaining DD business will have EBITDA of ~$4.5b in 2020. Assuming the $25b is used to pay off all debt, FCF will likely be in the neighborhood of $2.5b/yr. It looks like the remaining DD business is a 10% ROIC business (I'm not if 35% above was tangible ROE or just nutrition). At that point, 10x EBITDA or 12x-14x FCF with a normal capital structure works out to approximately $45b EV (vs a current $39b EV, assuming a $25b sale of the nutrition business). Depending on the future capital structure, there might be some upside but at least in my initial look, I don't see a ton of value in DD.

Let's compare how you get to 10% ROIC.  Can you show your steps of your calculation?  Thanks. 
Title: Re: DD - DuPont de Nemours
Post by: Schwab711 on December 09, 2019, 09:09:58 AM
I started looking at DD and I'm not sure it's all that good of a deal even if the nutrition business sells for $25b. The remaining DD business will have EBITDA of ~$4.5b in 2020. Assuming the $25b is used to pay off all debt, FCF will likely be in the neighborhood of $2.5b/yr. It looks like the remaining DD business is a 10% ROIC business (I'm not if 35% above was tangible ROE or just nutrition). At that point, 10x EBITDA or 12x-14x FCF with a normal capital structure works out to approximately $45b EV (vs a current $39b EV, assuming a $25b sale of the nutrition business). Depending on the future capital structure, there might be some upside but at least in my initial look, I don't see a ton of value in DD.

Let's compare how you get to 10% ROIC.  Can you show your steps of your calculation?  Thanks.

As of 9/30/2019:
BV = $41.3b
Less: Goodwill & Intangibles (Nutrition) = $15.4b
Plus: Cash (sale) = $25.0b
Debt = $18.2b
Less: Excess Cash = $25.0b
=> Total Invested Capital = $44.1b
Less: Goodwill (Remaining Segments) = $22.0b
=> Total Tangible Invested Capital = $22.1b

$2.5b FCF / $22.1b TTIC = 11.3%

It's still a nice business if it's potentially 11% tangible invested capital. The business could operate on an equity-only capital structure, which is certainly better than I expected before I looked at DD RemainCo. I'm not sure the best option is to buy back shares at a 10x EBITDA multiple though (I think I'd prefer a special dividend at current prices). DD seems like a fantastic LBO candidate, post-sale.



I did a back of the envelope estimating $2.5b FCF based on (less confident in the accuracy of the below but it should be close since I'm looking at a rough normalized figure):
$4.5B EBITDA
Less: $2.0b D/A
Less: $0.6b taxes
=>
$1.9b NI
Plus: $1.0b D/A less Capex
Less: $0.4b (once this tax shield runs-off)
=>
$2.5b normalized FCF (assumes $0 debt)

We are probably looking at $2.0b - $2.2b FCF with a normal capital structure but I don't know what DD's plans are.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 09, 2019, 11:25:12 AM
Schwab,

I use the EBIT/(Net Working Capital + net PP&E) method. 

Let's say we use your example and let's not both looking at the adjustments for the sale.  As of Q3, the GAAP book equity is $41.3bn for the whole company.  I think the FCF, pre nutrition sale, is $4bn.  But let's say it is $3.5bn to be conservative.  So that's our numerator.   

$41.3bn less total Goodwill and intangible of $46.6bn.  In essence, DD is already operating with negative tangible equity.  So the return on equity (if you are using a fully interest paying, cap ex, and taxed figure, then you should use a leveraged equity figure), is based off a negative figure.  If they sell nutrition, this equity figure should drop not increase, although it is already negative.  This is the advantage of these better businesses with good capital allocation skills.  They operate with negative tangible equity and the capital markets let them because they are such good businesses. 

The EBIT/(Net Working Capital + Net PP&E) is a unlevered and untaxed method.  Your method is a levered and fully taxed method.  A negative number with your method indicates a very high return on capital.     

Gut check - Ed Breen is too smart to let $44bn of capital sit on the balance and not do much with it.  I can't seem to follow your steps. 
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 09, 2019, 11:30:23 AM
Spek,

Can you expand on this a bit more.  I would love to hear your thoughts on DD's product in detail.  Call me a nerd, as much detail as you are willing to spare on this board. 

From another thread you said the following - I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers  think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks donít have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldnít you want to own more.? Of course there is always the very real risk of  thesis being broken, but if you canít tell a real problem from a perceived or transient one, what do you really know?
Title: Re: DWDP - Dow DuPont
Post by: Schwab711 on December 09, 2019, 01:14:56 PM
BG,

Your formula is going to result in higher prices for companies with more debt/M&A since your capital calculation excludes debt (and goodwill/intangibles). Further, going by book NWC, you are excluding $2b of debt that should actually be added to the capital calculation. Including nutrition, using (NWC + Fixed Assets + Debt) as the formula for capital, I get capital of ~$34.6b (I'd also point out that my previous calculation and this one does not include DTLs or the pension liability). I don't know where $4b FCF comes from (I'm guessing it's EBIT), but let's assume it's reasonable. Tangible pre-tax ROIC is 11.6%.

I have no idea what you are talking about with the below but it sounds like we are back to you are looking at tangible ROE or other formulas and I'm talking about invested capital. The reason I'm staying away from ROE is because tangible equity can be negative (as you point out).
Quote
A negative number with your method indicates a very high return on capital. 

The numbers are right. You can have a difference of opinion with whether to exclude intangibles or not (in my example), but they are just reported numbers and median estimates of 2020 EBITDA.
Title: Re: DWDP - Dow DuPont
Post by: sleepydragon on December 09, 2019, 03:00:50 PM
BG,

Your formula is going to result in higher prices for companies with more debt/M&A since your capital calculation excludes debt (and goodwill/intangibles). Further, going by book NWC, you are excluding $2b of debt that should actually be added to the capital calculation. Including nutrition, using (NWC + Fixed Assets + Debt) as the formula for capital, I get capital of ~$34.6b (I'd also point out that my previous calculation and this one does not include DTLs or the pension liability). I don't know where $4b FCF comes from (I'm guessing it's EBIT), but let's assume it's reasonable. Tangible pre-tax ROIC is 11.6%.

I have no idea what you are talking about with the below but it sounds like we are back to you are looking at tangible ROE or other formulas and I'm talking about invested capital. The reason I'm staying away from ROE is because tangible equity can be negative (as you point out).
Quote
A negative number with your method indicates a very high return on capital. 

The numbers are right. You can have a difference of opinion with whether to exclude intangibles or not (in my example), but they are just reported numbers and median estimates of 2020 EBITDA.

I agree. Companies pretty much can have any roe they want by issuing more debt.
ROIC is the one the look at to judge if they have pricing power and competitive barriers.
Title: Re: DWDP - Dow DuPont
Post by: lnofeisone on December 09, 2019, 03:01:28 PM
Spek,

Can you expand on this a bit more.  I would love to hear your thoughts on DD's product in detail.  Call me a nerd, as much detail as you are willing to spare on this board. 

From another thread you said the following - I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers  think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks donít have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldnít you want to own more.? Of course there is always the very real risk of  thesis being broken, but if you canít tell a real problem from a perceived or transient one, what do you really know?

BG,

I realize this Q was is for Spek but I'll give you my (unasked for  :D) opinion as I have a very similar (nearly identical background - metallurgy side of MatSci) background from past life. When it comes to DD products, and specialty chemicals (in my case resins, adhesives, etc.) in general, once we had our processes in order and working, we would keep getting the same chemicals. It would take take 1)  discontinuation of a product (happened few times for environmental/hazard concerns) 2) draconian price increases. The few times when we switched products, it took about a year of testing the alternatives (best case) and sometimes would stretch into several years to confirm that the materials would perform the same way and, more importantly, fail exactly the same as the one before it. This involved destructive (e.g.,thermal/mechanical testing), non-destructive tests (e.g., conductance), countless hours (think in the 1,000s) of microscopy (SEM/TEM/X-ray). Basically, a production that nobody wanted because it was terribly expensive, taxing on labor (all those tests frequently require specialization), and not very exciting.

I recall a few times when we were alerted of either coming price increases or discontinuation of a product and we would just stock up.

In the similar vein, engineers/scientists swear by the materials they "grew up" with. Getting a new boss with his own set of experience was a particularly exciting time (/sarcasm).

In a nutshell, the economy would dictate the quantity of a chemical needed but not the chemical. The price was generally assumed to go up.
Title: Re: DWDP - Dow DuPont
Post by: KJP on December 09, 2019, 04:02:30 PM
BG,

Your formula is going to result in higher prices for companies with more debt/M&A since your capital calculation excludes debt (and goodwill/intangibles). Further, going by book NWC, you are excluding $2b of debt that should actually be added to the capital calculation. Including nutrition, using (NWC + Fixed Assets + Debt) as the formula for capital, I get capital of ~$34.6b (I'd also point out that my previous calculation and this one does not include DTLs or the pension liability). I don't know where $4b FCF comes from (I'm guessing it's EBIT), but let's assume it's reasonable. Tangible pre-tax ROIC is 11.6%.

I have no idea what you are talking about with the below but it sounds like we are back to you are looking at tangible ROE or other formulas and I'm talking about invested capital. The reason I'm staying away from ROE is because tangible equity can be negative (as you point out).
Quote
A negative number with your method indicates a very high return on capital. 

The numbers are right. You can have a difference of opinion with whether to exclude intangibles or not (in my example), but they are just reported numbers and median estimates of 2020 EBITDA.

I agree. Companies pretty much can have any roe they want by issuing more debt.
ROIC is the one the look at to judge if they have pricing power and competitive barriers.

Return on tangible invested capital would provide evidence of pricing power/competitive barriers.  But adding in artifacts from purchasing accounting (goodwill, finite lived intangibles) will muddy the waters and understate the true economics of the existing business going forward.

An example will illustrate the point.  Scenario 1:  Company A buys Company B for $1 billion.  Scenario 2:  Company A buys the same Company B for $5 billion.  Scenario 2 will result in Company A recording $4 billion more in purchase accounting intangibles, which obviously will reduce a ROIC calculation that includes purchase accounting intangibles in the denominator.  But the difference is just an accounting entry that has no bearing on the quality of Company B's business -- Company B didn't suddenly become a worse business (less pricing power/fewer competitive advantages) simply because Company A paid more for it.

Long story short, including intangibles arising from purchase accounting in invested capital is useful for evaluating a management's M&A track record.  But I don't think it's useful for evaluating the true economics of the business or for performing a calculation that would provide evidence of barriers to entry/competitive advantage (or lack thereof).

Similarly, a business's underlying pre-tax ROIC should be independent of how it's financed (the tax shield from debt would affect post-tax numbers).  That is why I use the same method as BG for calculating invested capital.  You can then address the benefits (or demerits) of how the business is financed separately.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on December 09, 2019, 04:10:20 PM
Spek,

Can you expand on this a bit more.  I would love to hear your thoughts on DD's product in detail.  Call me a nerd, as much detail as you are willing to spare on this board. 

From another thread you said the following - I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers  think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks donít have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldnít you want to own more.? Of course there is always the very real risk of  thesis being broken, but if you canít tell a real problem from a perceived or transient one, what do you really know?

BG,

I realize this Q was is for Spek but I'll give you my (unasked for  :D) opinion as I have a very similar (nearly identical background - metallurgy side of MatSci) background from past life. When it comes to DD products, and specialty chemicals (in my case resins, adhesives, etc.) in general, once we had our processes in order and working, we would keep getting the same chemicals. It would take take 1)  discontinuation of a product (happened few times for environmental/hazard concerns) 2) draconian price increases. The few times when we switched products, it took about a year of testing the alternatives (best case) and sometimes would stretch into several years to confirm that the materials would perform the same way and, more importantly, fail exactly the same as the one before it. This involved destructive (e.g.,thermal/mechanical testing), non-destructive tests (e.g., conductance), countless hours (think in the 1,000s) of microscopy (SEM/TEM/X-ray). Basically, a production that nobody wanted because it was terribly expensive, taxing on labor (all those tests frequently require specialization), and not very exciting.

I recall a few times when we were alerted of either coming price increases or discontinuation of a product and we would just stock up.

In the similar vein, engineers/scientists swear by the materials they "grew up" with. Getting a new boss with his own set of experience was a particularly exciting time (/sarcasm).

In a nutshell, the economy would dictate the quantity of a chemical needed but not the chemical. The price was generally assumed to go up.

I second what infoeisone started, once a material for a process is locked in (like a photolithography agent, cleaning agent or OLDD material ) it is unlikely to be changed. The reason is simple - many process are just too complex and the unknown unknowns of a change require extensive requalification of the entire process. This is almost never going to happen, unless a process is clearly broken . The cost benefit ratio to initiate a change is very unfavorable, the consumable are typically cheap and may be let say $10/ wafer, but the value of the wafer at that point as work in process may well be thousands of $. So initiating any change is generally a bad risk reward and will receive a lot of pushback from other stakeholders.

For other products, I think Duponts  brand name is important. For example, I imagine there would be some pushback when safety equipment like bulletproof vests were to be bought  by an adventurous buyer made from a generic product rather than Kevlar. Same is even true for something like cut resistant gloves. Clear room or Hazmats suits are often called Tyvek suits. Yes, other materials do exists, but Tyvek is what is in everyoneís mind and people keep using and reordering them. All the above translates into pricing power. Now given, the volumes will change with the level of activity for each of these products they are  going to be produced and that can and will fluctuate, but generally I have not seen a situation where a plant manager will risk losing hundred thousand of dollars and lost sales to save a few hundred dollars for a consumable even in a severe downturn.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on December 09, 2019, 04:15:34 PM
I estimate DD tangible invested capital (using the passive side of the balance sheet) at around $15B: $10B in PPE, ~$4B in Investors and $1B in net working capital (accounts receivable minus accounts payable). So with $4B in FCF, I get  a ~27% ROTC. Itís probably a bit lower than that, because I think there are some unconsolidated assets plus a bit of cash needed to run the business.
Title: Re: DWDP - Dow DuPont
Post by: Schwab711 on December 09, 2019, 05:13:31 PM
I suppose the last thing worth pointing out is that $4b is not actual FCF, it's projected EBIT. DD has ~$700m in interest and $850m in taxes. FCF is something less than $2.5b before the sale of nutrition. My $2.5b estimate is based on generous 2020 estimates. $2b / $15b = 13.3% tangible ROIC.

Further, there's $2b in long-term investments/assets not included in capital calculation that is contributing to EBIT. As mentioned, DD probably doesn't have excess cash or at least some is needed.

Considering DD has generally grown through M&A and likely will again in the future, I'm not sure it makes sense to look at tangible returns. Simple sanity check says DD is unlikely to have returns well-above WACC considering they operate in competitive markets.

It's not that any of this is overly important other than I don't think DD's remaining business is likely to garner a high valuation multiple.
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on December 09, 2019, 05:27:59 PM
So, summarizing, at least how I interpret the last maybe half dozen posts... depending upon the preference for inputs, DD is sandwiched within a range of being considered an average but nothing special business trading reasonably cheap, to a modestly undervalued, great business with some financial levers to pull....

As this summary then gets thrown onto the dart board of "everything else", I think that on a relative basis it's not a bad place to be especially given where a lot of the rest of the market is. Which is why I have a little bit of cash there. But would be waiting for lower prices to put on something of larger size.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on December 09, 2019, 05:57:51 PM
I suppose the last thing worth pointing out is that $4b is not actual FCF, it's projected EBIT. DD has ~$700m in interest and $850m in taxes. FCF is something less than $2.5b before the sale of nutrition. My $2.5b estimate is based on generous 2020 estimates. $2b / $15b = 13.3% tangible ROIC.

Further, there's $2b in long-term investments/assets not included in capital calculation that is contributing to EBIT. As mentioned, DD probably doesn't have excess cash or at least some is needed.

Considering DD has generally grown through M&A and likely will again in the future, I'm not sure it makes sense to look at tangible returns. Simple sanity check says DD is unlikely to have returns well-above WACC considering they operate in competitive markets.

It's not that any of this is overly important other than I don't think DD's remaining business is likely to garner a high valuation multiple.

My understanding of ROIC that one looks either at the left hand side (asset side) or the right hand side (equity & liability side)of the balance, sheet,, it should not muddle them together. I picked the right hand side, so one has to stick with that. I do agree agree that the $4B in FCF is probably too high.  My former notes  derived at ~$3.4B, which yields a ~23% as a Return on tangible equity.

Yes DuPont has traditionally growth via acquisitions and they have done a poor job at that. The current DD thesis really evolves around this company  doing better than in the past, otherwise there is no point in owning it. Most of the value will be created with organic growth (at least thatís my thesis). Currently, organic growth isnít there, hence the stock isnít moving, however, if we get a couple of percent volume growth and pricing with inflation, then the relatively high ROIC start to matter. Add in some value add from Breen doing some magic via dispositions, mergers and buybacks and we are looking at double digit returns for the stock.

From my POV, DD isnít a great business, but it is a good business that should be around for a long time. In that sense, it would a great business for BRK to own, imo.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 09, 2019, 09:52:55 PM
Spek,

Can you expand on this a bit more.  I would love to hear your thoughts on DD's product in detail.  Call me a nerd, as much detail as you are willing to spare on this board. 

From another thread you said the following - I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers  think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks donít have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldnít you want to own more.? Of course there is always the very real risk of  thesis being broken, but if you canít tell a real problem from a perceived or transient one, what do you really know?

BG,

I realize this Q was is for Spek but I'll give you my (unasked for  :D) opinion as I have a very similar (nearly identical background - metallurgy side of MatSci) background from past life. When it comes to DD products, and specialty chemicals (in my case resins, adhesives, etc.) in general, once we had our processes in order and working, we would keep getting the same chemicals. It would take take 1)  discontinuation of a product (happened few times for environmental/hazard concerns) 2) draconian price increases. The few times when we switched products, it took about a year of testing the alternatives (best case) and sometimes would stretch into several years to confirm that the materials would perform the same way and, more importantly, fail exactly the same as the one before it. This involved destructive (e.g.,thermal/mechanical testing), non-destructive tests (e.g., conductance), countless hours (think in the 1,000s) of microscopy (SEM/TEM/X-ray). Basically, a production that nobody wanted because it was terribly expensive, taxing on labor (all those tests frequently require specialization), and not very exciting.

I recall a few times when we were alerted of either coming price increases or discontinuation of a product and we would just stock up.

In the similar vein, engineers/scientists swear by the materials they "grew up" with. Getting a new boss with his own set of experience was a particularly exciting time (/sarcasm).

In a nutshell, the economy would dictate the quantity of a chemical needed but not the chemical. The price was generally assumed to go up.

Thank you very much for this explanation!
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 10, 2019, 05:20:43 PM
On Dec. 9, Bloomberg reported rumors that International Flavors & Fragrances is exploring a combination with DuPont's nutrition business. With this news being only speculation at this point, our IFF and DuPont valuation models are unchanged. We maintain our $131 per share fair value estimate and wide-moat rating for IFF as well as our $93 per share fair value estimate and narrow-moat rating for DuPont.
Reportedly, both IFF and Kerry Group have expressed interest in the DuPont nutrition assets. The overall size of the business in play and the high quality of the underlying assets (exhibiting clear traces of switching costs and intangible assets), combined with the potential for a bidding war, will likely set a lofty price tag.

The rumored transaction would establish a new company housing both the DuPont nutrition assets as well as the bidder's assets that would be spun off to existing investors in a tax-efficient transaction. It remains to be seen which portions of DuPont's Nutrition & Biosciences segment would ultimately be involved in the deal. However, given the trading multiples of its competitors, we surmise that the segment as a whole would command a multiple safely above 20 times EBITDA. A range of 20-25 times trailing EBITDA would suggest a segment valuation range of $32 billion-$40 billion. However, we estimate that the pricing range for the nutrition business alone would be roughly two thirds of this total.

For IFF, DuPont's nutrition business has overlap with existing business lines but also offers some new adjacencies. However, IFF shares traded nearly 6% lower on the news. With IFF still digesting its acquisition of Frutarom, consummated in October 2018, the news of a potentially much larger deal with DuPont comes as a surprise. The investor caution reflected by today's downward share price movement is understandable, as the ongoing integration of Frutarom has been far from seamless.
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on December 10, 2019, 06:05:47 PM
Oh Frutarom...what a gem that was. Those guys were some of the best I've ever seen at rolling up companies.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 11, 2019, 06:50:43 AM
Oh Frutarom...what a gem that was. Those guys were some of the best I've ever seen at rolling up companies.

No background on that. Serious or sarcasm?
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on December 11, 2019, 08:12:00 AM
Oh Frutarom...what a gem that was. Those guys were some of the best I've ever seen at rolling up companies.

No background on that. Serious or sarcasm?

Dead serious. Israeli small cap that rolled up the space through low risk bolt on acquisitions. 10 bagger in like 5 years until IFF bought them.
Title: Re: DWDP - Dow DuPont
Post by: rogermunibond on December 11, 2019, 10:38:28 AM
IFF overpaid for Frutarom though.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 15, 2019, 01:19:18 PM
Hot off the press!! This was literally like 20 minutes ago.  DuPont and IFF in a reverse morris trust agreement and will end up with 55.4% of the the combined NewCo.  DuPont share holders will also receive $7.3bn special dividend.  This transaction will be tax free to DuPont shareholders.   

IFF to Merge with DuPonts Nutrition
3:52 PM ET 12/15/19 | BusinessWire


Creates New Global Integrated Solutions Leader Serving Consumer-Oriented Food & Beverage, Home & Personal Care and Health & Wellness End Markets

The Deal Values the Combined Company at $45.4 billion on an Enterprise Value Basis, Reflecting a Value of $26.2 billion for the N&B business with Combined Pro Forma 2019 Revenue of more than $11 billion and $2.6 billion of EBITDA

Creates Significant Shareholder Value through Tax-Efficient Reverse Morris Trust Structure with Expected Cost Synergies of $300 million and Revenue Synergies of About $400 million by End of Year Three Post Close

#1 or #2 Market Positions in High-Value Ingredients Categories and Best-in-Class R&D Capabilities

Andreas Fibig to Serve as Chairman and CEO and Ed Breen Will Become Lead Independent Director; Combined Company Board to Consist of Directors from IFF and DuPont

IFF's Largest Shareholder, at 19% of Shares Outstanding, Has Agreed to Vote in Favor of the Transaction

Committed to Maintaining Investment Grade Balance Sheet and Expected to Delever Below 3.0x by Year Two Post Transaction Closing, While Maintaining IFF's Existing Dividend Policy

NEW YORK & WILMINGTON, Del.--(BUSINESS WIRE)--December 15, 2019--

Regulatory News:

IFF (NYSE: IFF) (Euronext Paris: IFF) (TASE: IFF) and DuPont (NYSE: DD) today announced that they have entered into a definitive agreement for the merger of IFF and DuPont's Nutrition & Biosciences (N&B) business in a Reverse Morris Trust transaction. The deal values the combined company at $45.4 billion on an enterprise value basis, reflecting a value of $26.2 billion for the N&B business based on IFF's share price as of December 13, 2019. Under the terms of the agreement, which has been unanimously approved by both Boards of Directors, DuPont shareholders will own 55.4% of the shares of the new company and existing IFF shareholders will own 44.6%. Upon completion of the transaction, DuPont will receive a one-time $7.3 billion special cash payment, subject to certain adjustments.

The combination of IFF and N&B creates a global leader in high-value ingredients and solutions for global Food & Beverage, Home & Personal Care and Health & Wellness markets, with estimated 2019 pro forma revenue of more than $11 billion and EBITDA of $2.6 billion, excluding synergies. The complementary portfolios will give the company leadership positions across key Taste, Texture, Scent, Nutrition, Enzymes, Cultures, Soy Proteins and Probiotics categories. The combined company's global reach and enhanced set of capabilities will enable the creation of innovative solutions to respond to customer demands and increasing consumer preferences for natural, healthier, and "better for you" products.

"The combination of IFF and N&B is a pivotal moment in our journey to lead our industry as an invaluable innovation and creative partner for our customers. Together, we will create a leading ingredients and solutions provider with a broader set of capabilities to meet our customers' evolving needs," said IFF Chairman and CEO, Andreas Fibig. "With highly complementary portfolios, we will have global scale and leading positions in key growth categories to capitalize on positive market trends, drive strong profitable growth for our shareholders and create opportunities for our employees. I have been impressed by N&B's management team, which shares our culture and values, and we look forward to welcoming them to the IFF family."

"DuPont and IFF share long and successful histories of customer-driven innovation and cultures of excellence, which is why I am confident that N&B will be well-positioned for its next phase of growth. I am pleased to join the Board of the combined organization and remain involved in unlocking the potential of this new company," said Ed Breen, Executive Chairman of DuPont. "We conducted a very thorough process leading us to the selection of IFF as the preferred strategic partner for N&B. I am excited about the future of the new company and all the opportunities it has for long-term value creation."

Strategic Rationale

The new company will be ideally equipped to deliver in-demand differentiated solutions for more natural, healthy products to an expanded customer base spanning both large multinationals and fast-growing small and medium-sized customers.

-- Best-in-Class Innovation Portfolio Creates Differentiated Offering and

Compelling Value Proposition -- The company will be an immediate leader

in the rapid consumer-driven industry evolution toward healthier, "better

for you" products. With leading R&D and applications development

capabilities and an expanded customer base, the combined company is

expected to significantly increase customer speed to market, create new

efficiencies in product development and provide critical consumer

insights for next-generation products.

-- Leading Positions Across High-Value Added Ingredient Categories -- The

company will have #1 or #2 positions across attractive Taste, Texture,

Scent, Nutrition, Cultures, Enzymes, Soy Proteins and Probiotics

categories.

-- Highly Attractive Financial Profile -- Shareholders will benefit from a

highly profitable business with strong cash generation. The company

expects to generate attractive top-line growth and enhanced margins with

further benefit from cost synergies and revenue growth opportunities. The

combined company will maintain IFF's current dividend policy.

-- Shared Culture and Vision, a Strategic Asset to Execution -- IFF and N&B

are customer-focused organizations with cultures that emphasize science

and creativity. The combined company will benefit from the best of both

organizations' experienced leaders and talented teams. Our shared

commitment to sustainability, along with the combination of our

complementary capabilities, will allow us to positively shape the

evolution of the industry.

"My team and I are excited about the opportunity to build the new company and create a new world-class leader. Our expertise together with IFF will best position us to address customer needs and ultimately redefine our industry," said N&B President, Matthias Heinzel. "IFF's innovation and customer-centric culture is remarkably similar to ours and we look forward to working with them for a smooth integration of our two organizations."

Governance and Management

Upon closing, the new company's Board of Directors will consist of 13 directors: 7 current IFF directors and 6 DuPont director appointees until the Annual Meeting in 2022, when there will be 6 directors from each company. Andreas Fibig will continue to be the Chairman of the Board and an IFF appointee, he will also continue as Chief Executive Officer. The company will be headquartered in New York. DuPont Executive Chairman, Ed Breen, will join the board of the combined company as a DuPont appointee and will serve as Lead Independent Director starting June 1, 2021.

The new company will draw upon the best talent from both organizations. IFF and N&B will form an Integration Office composed of leaders from both companies.

Financial Benefits

The combined company will have a strong financial profile, including:

-- Pro forma revenues of more than $11 billion based on fiscal year 2019

estimated results

-- Adjusted EBITDA margin of 23% pre-synergies and 26% with run-rate cost

synergies based on fiscal 2019 pro forma estimated results

-- Expected revenue growth rate in the mid-single digits over the long-term

-- Strong cash flow generation supporting an investment grade credit profile

-- Commitment to the continuation of IFF's historical dividend policy

IFF expects to realize cost synergies of approximately $300 million on a run-rate basis by the end of the third year post-closing. These cost synergies will be driven by procurement excellence, streamlining overhead and manufacturing efficiencies. In addition, the combined company's target is to deliver more than $400 million in run-rate revenue synergies, which would result in more than $175 million of EBITDA, driven by cross-selling opportunities and leveraging the expanded capabilities across a broader customer base.

IFF is committed to maintaining an investment grade rating and plans to delever from approximately 4.0x at transaction close to below 3.0x by year two following closing. Following the close of the transaction, IFF expects that substantially all of the debt of the combined company will be pari passu.

Guidance

IFF is affirming its existing 2019 full-year guidance. The company reconfirms its full-year projections for sales to be between $5.15 billion and $5.25 billion with adjusted EPS to be between $4.85 and $5.05 and adjusted EPS excluding amortization to be between $6.15 and $6.35.

DuPont reconfirms its expectations for total annual revenue of approximately $21.5 billion and an adjusted EPS(1) range of $3.77 to $3.82. DuPont expects operating EBITDA to be at the low end of the previously provided range, primarily driven by temporary supply chain disruptions in Safety & Construction (S&C) and Electronics & Imaging (E&I).

Transaction Details

The combination will be executed through a Reverse Morris Trust transaction. Upon completion, DuPont shareholders will own 55.4% of the combined company and IFF's shareholders will own 44.6%. In addition, at the time of completion, DuPont will receive a one-time $7.3 billion cash payment, subject to adjustment. The transaction is expected to be tax-free to DuPont and its shareholders for U.S. federal income tax purposes.

Financing and Approvals

(MORE TO FOLLOW) Dow Jones Newswires

December 15, 2019 15:52 ET (20:52 GMT)

Title: Re: DWDP - Dow DuPont
Post by: Gregmal on December 15, 2019, 02:43:55 PM
Good things happen when you go to the front of the net...voila
Title: Re: DWDP - Dow DuPont
Post by: kdk77 on December 15, 2019, 04:53:51 PM
The rest of the businesses on their own are probably not going to last forever. They might be sold off. Chemical world went through major upheaval in the last few years. I don't think this is the end.  More deals to follow I guess.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on December 16, 2019, 06:27:14 AM
Note that DD conveniently guided earnings down a bit from ~$3.95 to ~$3.8/ share. This will keep a lid on DD stock to some extend.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 16, 2019, 08:45:50 AM
Note that DD conveniently guided earnings down a bit from ~$3.95 to ~$3.8/ share. This will keep a lid on DD stock to some extend.

I think specialty is tough this year.  This is consistent across the board with other specialty names that I own. 
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on December 17, 2019, 04:14:32 AM
Reading the merger presentation on DDís IR website, it seems like the main benefit of this transactions are
1) somewhat levered recap - DD remainco gets $7B
2) they merge with IFF which currently has a ~16x EBITDA valuation
3)  $300-400M in merger synergies and creating the largest company in their niche

Seems alright when the implied valuation of the company is ~11x EBITDA. I think it is correct that some of the remainco business lines could well end up being merged as well. It looks more and more like Tyco 2.0 to me.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on December 28, 2019, 10:25:51 AM
Spek,

Can you expand on this a bit more.  I would love to hear your thoughts on DD's product in detail.  Call me a nerd, as much detail as you are willing to spare on this board. 

From another thread you said the following - I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers  think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks donít have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldnít you want to own more.? Of course there is always the very real risk of  thesis being broken, but if you canít tell a real problem from a perceived or transient one, what do you really know?

BG,

I realize this Q was is for Spek but I'll give you my (unasked for  :D) opinion as I have a very similar (nearly identical background - metallurgy side of MatSci) background from past life. When it comes to DD products, and specialty chemicals (in my case resins, adhesives, etc.) in general, once we had our processes in order and working, we would keep getting the same chemicals. It would take take 1)  discontinuation of a product (happened few times for environmental/hazard concerns) 2) draconian price increases. The few times when we switched products, it took about a year of testing the alternatives (best case) and sometimes would stretch into several years to confirm that the materials would perform the same way and, more importantly, fail exactly the same as the one before it. This involved destructive (e.g.,thermal/mechanical testing), non-destructive tests (e.g., conductance), countless hours (think in the 1,000s) of microscopy (SEM/TEM/X-ray). Basically, a production that nobody wanted because it was terribly expensive, taxing on labor (all those tests frequently require specialization), and not very exciting.

I recall a few times when we were alerted of either coming price increases or discontinuation of a product and we would just stock up.

In the similar vein, engineers/scientists swear by the materials they "grew up" with. Getting a new boss with his own set of experience was a particularly exciting time (/sarcasm).

In a nutshell, the economy would dictate the quantity of a chemical needed but not the chemical. The price was generally assumed to go up.

I second what infoeisone started, once a material for a process is locked in (like a photolithography agent, cleaning agent or OLDD material ) it is unlikely to be changed. The reason is simple - many process are just too complex and the unknown unknowns of a change require extensive requalification of the entire process. This is almost never going to happen, unless a process is clearly broken . The cost benefit ratio to initiate a change is very unfavorable, the consumable are typically cheap and may be let say $10/ wafer, but the value of the wafer at that point as work in process may well be thousands of $. So initiating any change is generally a bad risk reward and will receive a lot of pushback from other stakeholders.

For other products, I think Duponts  brand name is important. For example, I imagine there would be some pushback when safety equipment like bulletproof vests were to be bought  by an adventurous buyer made from a generic product rather than Kevlar. Same is even true for something like cut resistant gloves. Clear room or Hazmats suits are often called Tyvek suits. Yes, other materials do exists, but Tyvek is what is in everyoneís mind and people keep using and reordering them. All the above translates into pricing power. Now given, the volumes will change with the level of activity for each of these products they are  going to be produced and that can and will fluctuate, but generally I have not seen a situation where a plant manager will risk losing hundred thousand of dollars and lost sales to save a few hundred dollars for a consumable even in a severe downturn.

On Tyvek, does anyone here know why TyVek building wrap seems to be the only building wrap used in new home construction?  They seem to have a very large market share and I still don't fully understand what it does but I certain see a lot of it when I drive around.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on December 28, 2019, 11:23:03 AM
Quote
On Tyvek, does anyone here know why TyVek building wrap seems to be the only building wrap used in new home construction?  They seem to have a very large market share and I still don't fully understand what it does but I certain see a lot of it when I drive around.

I think itís just a brand name thing. There are some competing products out there (Blueskin etc.), but Tyvek seems to have by far the largest name recognition and seems to have the largest market share in an industry that doesnít really embrace change (home building).

As for what it does, itís moisture barrier and keeps moisture out, while at the same time allowing water vapor to get out, thus avoiding condensation in the walls.
Title: Re: DWDP - Dow DuPont
Post by: LC on December 30, 2019, 02:29:15 PM
It's a proven product and as Spek alluded, the industry does not embrace change. For good reason I might add: if you screw up the envelope you could be looking at labor and material repair costs that are exponential orders of magnitudes greater than saving a bit vs Tyvek.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 27, 2020, 07:38:05 AM
DD is trading at a bizare price.  This is what we know

Nutrition and Bio business is going to merge with IFF for 55% of merged Co plus $7.3bn of cash payment
Bloomberg reported that the Electronic and Imaging maybe sold or Reverse Morris Trust per this news article  https://www.bloomberg.com/news/articles/2020-01-16/dupont-is-said-to-explore-divestiture-of-electronics-unit?sref=crzXzEVm

https://www.bloomberg.com/news/articles/2019-11-07/dupont-is-said-to-explore-divestiture-of-transportation-unit?sref=crzXzEVm


So we know that all 4 segments will be pure play in the next year.   The IFF deal values that segment at almost $25bn and the current EV is roughly $57.5bn.  With some share buyback in 2019, the EV is likely $2bn less.  So call it $55bn less $25bn or roughly $30bn of EV for $4bn of EBITDA assuming $5.5bn of EBITDA less $1.5-1.6bn of EBITDA for Nutrition.  So the remaining business trades for 7.5x EV/EBITDA.  Kind of cheap for something with these margins etc? 
Title: Re: DWDP - Dow DuPont
Post by: Schwab711 on January 27, 2020, 08:02:40 AM
How are you calculating $57.5b? CIQ is showing $60.5b EV and buybacks would increase EV since there's less cash.

$62.5b - $25b = $37.5b EV pro forma

=> 9.4x EV/EBITDA (8.9x without accounting for buybacks) for the stub?
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 27, 2020, 08:25:32 AM
740mm S/O at $57.8 equals $42.8bn
$15.6bn Long Term Debt
Net Cash and Short Term Debt net out
EV equals $58.4bn

I generally look forward 3-4 quarters. 

5.5bn of EBITDA (less than I previously anticipated) less $1bn of cap ex, less $700mm of interest expenses, less $588mm of cash taxes (due to $2bn of amort and Depreciation), equals $3.2bn of FCF to shareholders

DD pays $888mm of dividends which leaves about $2.3bn available for share buybacks.  At today's price, they will probably commit $2bn to share buybacks.  Although they have made some water filtration acquisitions.   

$2bn buys back 34.7mm shares which means 705mm S/O 12 months out $40.7bn MC plus $15.6bn of debt equals $56.3bn

Remaining EBITDA of roughly $4bn.  But you take out $25bn which is roughly $31.3bn pro-forma on $4bn of EBITDA. 7.8x EV/EBITDA roughly.

The thing is that any transactions likely values the Transportation and Electronics at higher than 7.8x EV/EBITDA.   
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 27, 2020, 08:27:13 AM
DD has disappointed in 2019 in that I am about 750mm off with the EBITDA.  Part of it is the cyclical portion of the business declining instead of growing.  Part of it is that DD did a bad job explaining G&A cost post deal as I have mentioned before.  But I generally like the spins and RMTs.  They tend to combine companies in similar offerings and make them stronger IMO. 
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 27, 2020, 08:28:52 AM
I think with DD and with CHTR, you need to skate to where the puck is with regards to S/O.  My general thought is that if they were buying back shares in the $60 and $70s, they are definitely buying back shares now.  The longer that shares trade below intrinsic, the more value they create in the long run. 
Title: Re: DWDP - Dow DuPont
Post by: Schwab711 on January 27, 2020, 08:58:33 AM
Thanks

I was wrong, buybacks should be neutral to EV. If $2b spent on buybacks to reduce shares then ST debt and cash don't net anymore.

Minority interest and capital leases should be included in EV (I wouldn't add pension given the timing of when the underfunded portion will be made whole). EV = $59.5b and stub at ~8.6x then.

Not trying to be negative but I think DD is roughly fairly valued (maybe slightly undervalued on SOTP basis). If DD could organically expand the stub businesses then ROIC would be quite high. Historically, they have needed to expand through M&A, which has far lower returns. Assuming a similar low return, low growth business, 8.6x is in the neighborhood of reasonable.

The stub portion likely has a far lower EBITDA to FCF conversion. Nutrition & Biosciences was probably ~$300m of 3Q19 FCF.

I'll keep watching. Maybe the stub businesses surprise me.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 27, 2020, 11:16:39 AM
Spek, got any thoughts?
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on January 27, 2020, 03:13:58 PM
Spek, got any thoughts?

Well I donít have much original to write beyond what was talked about. I think DD is cheap, but itís not extremely cheap. in the past, business like this have traded for 8x EBITDA at times.

I agree on looking where the luck is going to be, but I donít think Mr Market is giving them any credit for improvements that are yet to come. Itís a bit like LBTYA where you have restructuring and negative organic growth going on at the same time and the latter one seems to determine the price of the stock.

Itís not just DD either that is struggling, BASF (which I have been following for decades) is struggling too with negative organic growth and also pricing pressure (in their commodity business). Since chemicals tend to be early indicators of economic activities, this makes me question a bit the positive economic outlook quite frankly, but thatís another story.

As far as restructuring or JV the electronic  matl unit is concerned, I considered this a hidden gem, as they have some very high margin business lines in their (40% EBITDA margins if I remember correctly), that should trade at nice multiples, assuming their are not cigar butts. So hopefully this will be a value enhancing move like the JV of the nutrients business. It just takes time and the market looks at this with a very sceptical view, which may not be thet surprising, given the fact that the namesake  predecessor has been mismanaged for decades.

Anyways, I added a few shares today.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 28, 2020, 08:52:02 AM
Thanks

I was wrong, buybacks should be neutral to EV. If $2b spent on buybacks to reduce shares then ST debt and cash don't net anymore.

Minority interest and capital leases should be included in EV (I wouldn't add pension given the timing of when the underfunded portion will be made whole). EV = $59.5b and stub at ~8.6x then.

Not trying to be negative but I think DD is roughly fairly valued (maybe slightly undervalued on SOTP basis). If DD could organically expand the stub businesses then ROIC would be quite high. Historically, they have needed to expand through M&A, which has far lower returns. Assuming a similar low return, low growth business, 8.6x is in the neighborhood of reasonable.

The stub portion likely has a far lower EBITDA to FCF conversion. Nutrition & Biosciences was probably ~$300m of 3Q19 FCF.

I'll keep watching. Maybe the stub businesses surprise me.

Schwab711,

I think you are too hang up on the fact that DuPont historically has to rely on acquisitions to grow.  In the matter of 3-4 yeas, Dow and Dupont were merged.  Different business lines were combined and then re-arranged into pure plays.  Non-cores are being sold off and the remaincos are being high graded with regards to ROIC.  Am I the only one who sees a lot of value being created?  They are cutting cost, selling non-core, buying some water filtration businesses, and doing JVs, Reverse Morris Trust, etc left and right.  This is NOT YOUR PARENTS' DuPont.  This is Ed Breen's DuPont.  I think value guys have a tendency to extrapolate too much to the past when you have a new sheriff in town.   

On valuation, is 8.6x or 7.8x cheap, extremely cheap, or not cheap at all?  I think you will get a 15-25% CAGR in 3 years at today's prices due to

1) Additional parts being JV's at low to mid teens EV/EBITDA multiple. 
2) FCF being used for share buybacks and it should accelerate now.  Actually, the lower the price, the better the outcome 2-3 years out.  Charter went through a similar process.   
3) EV should be reduced over time with share buyback because you are using FCF (earnings) to cannabalize yourself.  This was one of my biggest investing mistakes in the last decade.  With smaller companies, the cash will simply pile up.  Yes, the EV shrinks in that case.  But the equity market cap stays the same.  With share buybacks, it can really improve your returns when every share that gets retires earning 30-50% accretion. 
4) I disagree that cash conversion for remaining company is low.  They are telling you that cap ex is $1bn.  There maybe some short term working capital tie up.  Specialty chemical companies can get tied up that way.  Of course, there is also a ton of noisy restructuring and integration cost along the way.  With ebbs and flows in working capital, the cashflow eventually reflects an EBITDA less interest expense less cash tax when smoothed out over a few years.   

Let's assume that the fair value of the remainco is 12-13x EBITDA.  Let's say that the remainco does currently trade at 8x EBITDA.  Debt is currently 3x.  So you have a 5x equity that will likely be re-valued by another 4-5x.   The puck is constantly moving around here.  I will sit down and do a spreadsheet at some point.  But mentally, I know that that the pro-forma is much higher going forward.   

If Ed Breen isn't there, I would not be as interested.  The market is skeptical and there is a ton of fatigue with this name.  Any analyst pitching this to their PM is likely getting a death stare at this point.  It hasn't worked and it hasn't worked for a long time.  But the parts are finally being split up and RMT, sold, or JVed. 

I think the outlier is the PFAS.  I just never have any confidence in my ability to handicap legal.  I think part of the reason why DD trades where it trades at is due to recent headlines like the PFAS lawsuits.   

Like Spek, I have bought a few more shares.     
Title: Re: DWDP - Dow DuPont
Post by: Schwab711 on January 28, 2020, 11:32:56 AM
Good luck to you. I hope this works out.

1) I generally apply no positive value due to the jockey (though it may be a negative). There's too many examples of highly touted managers not performing well or plainly hurting minority interests to think that I have the ability to judge a man's character based on 10-K's and word-of-mouth reputation. This sounds like the major difference in our opinion.

2) I've looked at current DuPont. Fully aware of the organizational changes. The RemainCo units are eh and the IFF/Nutrion merger is at nose-bleed EV/EBITDA. I'd rather own MCO/SPGI or similar quality at the same valuation. The 8.5x stub kicker isn't enough of a sweetener. Again, maybe I'm underestimating the JVs, or the synergies that will be realized, or other. I don't see 15%-25% CAGR without some serious multiple expansion and that's harder to bet on.

Every segment in RemainCo had negative Y/Y sales growth in 3Q19. Transportation & Industrial, the worst performing segment, took big hits in mobility and I&C. 8.5x isn't exactly cheap given trends. Maybe it reverses and that will lead to rising multiples. I have no insight into that.

3) Why I think RemainCo segments are 'eh'.

IFF had 3Q19 EBITDA of ~$280m. If we normalize IFF (NI + D/A + SBC - capex), then 3Q19 FCF was

IFF Dep as a % of EBITDA was ~10% (30/280). DD's Nutrition & Biosciences division had Dep as % of EBTIDA was probably ~$40m.

For DD's N&B segment in 3Q19: ($250m NI + $40m D/A - $45m capex) ~= $245m FCF. This is likely low since there's some amortization in N&B segment that acts as a tax shield.

DD N&B FCF / EBITDA >= 70%

DD Parent's normalized 3Q19 FCF was roughly equal to NI + Amortization + impairment ~= $700m

DD RemainCo FCF <= $700m - $245m = $455m

DD RemainCo FCF / EBITDA <= 455 / $1,050 = 43.3%

4) Growth concerns. Not only did I consider DD and DOW's history in this consideration, I've looked at comps. Almost every specialty materials/chemical company grows through M&A. Occasionally R&D works out, but that's unlikely to move the needle at DD at this point. There will certainly be some organic growth at some point, but I think assuming that Breen is done with M&A/financial wizardry and everything will be high return organic growth from here doesn't match available evidence.


------

At 8.5x EBITDA, RemainCo EV is valued at ~$8.9b. FCF is at most $1.8b (again, this could easily be $1.0b or $2.0b, depending on amortization in N&B segment, reasonableness of extrapolating one quarter of FCF, ect). I don't disagree RemainCo may be undervalued. It's also declining and that FCF may contract quickly given the margin profile. IFF/N&B business isn't attractive to me at current valuations. I think it's relatively fairly valued. It's a large part of DD's overall valuation going forward. Even if RemainCo and JV valuation increases, we are talking about 10%-20% return on large multiple expansion. There's also a conglomerate/complexity discount that should be applied to this type of SOTP thesis.

Overall, I think there are better ideas than DD, but I don't think this is a bad idea. That's why I've spent the time I have on it.
Title: Re: DWDP - Dow DuPont
Post by: undervalued on January 28, 2020, 12:18:41 PM
DD will be announcing earning on 30th if anyone thinking of adding more before then. FYI
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 28, 2020, 01:51:35 PM
Im leaning to buy a little more if we get closer to $55. The issue IMO is that theres zero real urgency to buy a stock like this. Its a good but not great biz. Cheap but not super cheap. Out of favor sector. It'll do fine if the financial engineering aspect plays out and is done in a prudent manner. So thats what counts. But its not something I see anyone excited about buying. Time is your friend here, just not tomorrow.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 28, 2020, 01:58:11 PM
Most of my money is made in situations of "it's cheap, time is your friend, just not tomorrow"  :)
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 29, 2020, 03:58:11 PM
I gave in a bought a little more today. You only live once.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 29, 2020, 05:59:04 PM




(Bloomberg) -- DuPont de Nemours Inc. and Teijin Ltd. are trying again to sell a joint venture that makes chemical films used in solar panels after an earlier deal fell through, people familiar with the matter said.

The firms are working with financial advisers to help with a disposal of the business, said the people, who asked not to be identified because the discussions are private. The joint venture could fetch about $1 billion in a sale, the people said.

DuPont and Teijin announced they would sell all their equity interest in the films business to Indorama Ventures PCL in 2017. The terms of the transaction werenít disclosed at the time. That deal was never completed, though, the people said.

The companies have now restarted the auction process with management presentations for potential buyers, the people said. Itís possible this time that an agreement might not be reached, or the companies may again end up keeping the business, they said.

A spokesman for Japan-based Teijin, said no decision has been made on selling the joint venture and declined to comment further. A representative for DuPont, based in Wilmington, Delaware, declined to comment.

DuPont has been transforming itself following the breakup of DowDuPont, the chemical giant created in a 2017 mega deal, through a series of divestitures.

DuPont Teijin Films is a 50-50 global joint venture between the two companies. It makes high-end polyethylene terephthalate films used for medical equipment, as well as solar panels.

So maybe $0.5bn for the JV if they own 50% of it. 

Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 29, 2020, 05:59:56 PM
I gave in a bought a little more today. You only live once.

Greg, I own a decent position.  Look at the $65 Jan 2021 LEAPs.  Seems like IFF JV will almost be done by then and maybe you'll wind up with a basket of 4 different companies or the market will at least start pricing that in.  The SOTP discount should not exist in this case, because they are actually breaking all the parts apart.  This was something that I did not appreciate as much about Cannae Holdings (formerly FNFV).  When it trades at a discount, they will actually sell.  When the stakes in the public company they own goes up in value, they actually sell those shares and use it to buy back. They distributed ownership in other companies.  So over time, the SOTP discount disappears.   
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 29, 2020, 07:13:31 PM
I gave in a bought a little more today. You only live once.

Greg, I own a decent position.  Look at the $65 Jan 2021 LEAPs.  Seems like IFF JV will almost be done by then and maybe you'll wind up with a basket of 4 different companies or the market will at least start pricing that in.  The SOTP discount should not exist in this case, because they are actually breaking all the parts apart.  This was something that I did not appreciate as much about Cannae Holdings (formerly FNFV).  When it trades at a discount, they will actually sell.  When the stakes in the public company they own goes up in value, they actually sell those shares and use it to buy back. They distributed ownership in other companies.  So over time, the SOTP discount disappears.

I'm curious, why the $65?

I guess expanding a little further, why over vs under? I have not gotten comfortable enough with the value to really go after structuring a trade like this, but would probably look at the $45 calls and if anything, adding a little something via shorting similarly dated LEAP puts, at or slightly out of the money. Just a quick glance the Jan 21 $45s are probably costing you $2-3 in premium vs going out to the $65s, in a vacuum you need the stock to do $10 from here for breakeven. Might I be missing something with regard to adjustments needing to be made for all the transaction going on? I know sometimes the options can get greasy when you have a lot of corporate actions. But all else equal I typically like to go a bit further down in the money to give myself a bit of room to be wrong. One of my best trade ever I recall was in Q1 2016 I had some Citi $50 calls that were in the money and then subsequently Citi dumped to like $39 in February. Long story short I still thought $50 was still good and bought an absurd amount of calls for maybe a $1 or $2 and by expiration Citi was over $60. Structuring is very important. Right now I just own the stock with about a ~1.5% position.

EDIT: I was looking at Jan 2022s. But same question stands.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 29, 2020, 09:03:32 PM
For me, mostly because I own a decent position already.  Going OTM allows me to pick up quite a bit of exposure without adding a ton of capital.  Going ITM results in lower premium, but less overall exposure.  I bought some Berry Calls and LEAPs when it traded to the $37-38 range.  I bought the $45 and $47.50 calls and LEAPs.  Those are mostly ITM now.  It's kind of how my brain is wired.  I generally think if the re-shuffling of companies will reveal a price in the $80s-90s, then paying $3 for the $65 will likely serve you well.  Heck, who knows, maybe some of that cyclical actual grows for a change.  Although with the Corona Virus, it looks like it may not.  But there are literally rumors from Bloomberg that this company will be split into 4. 

Nothing is sacred at Ed Breen's DuPont. 
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 30, 2020, 06:31:29 AM
Well, Ill get $55 today(maybe a touch cheaper). All in all, a very Dupont like Q. Not narrative changing. Just meh... I dont mind this gravitating towards cheaper though, given my current ability to find value in abundance in this market is limited.
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on January 30, 2020, 06:40:54 AM
Sold mine before the open today. Took an ~8% loss. I will evaluate this again in a month . Thesis seems broken as I didnít like blurb about  pricing pressure at all. Looks like dead money or worse for a while. Live and learn. Sorry guys :(
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 30, 2020, 06:55:32 AM
Sold mine before the open today. Took an ~8% loss. I will evaluate this again in a month . Thesis seems broken as I didnít like blurb about  pricing pressure at all. Looks like dead money or worse for a while. Live and learn. Sorry guys :(

You're probably right and I'd likely have the same approach if I was looking at this trying to make money today or this week. Im perhaps influenced as well by the slim pickings with respect to the overall market. I dont think this will ever be a super aggressive position, but theres some good stuff(assets) here, some mediocre stuff, and probably a good bit of accumulated corporate sludge picked up over the decades that can be "refined" so to speak. Will see.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 30, 2020, 01:18:29 PM
Sold mine before the open today. Took an ~8% loss. I will evaluate this again in a month . Thesis seems broken as I didnít like blurb about  pricing pressure at all. Looks like dead money or worse for a while. Live and learn. Sorry guys :(

Probably dead money for 1 year, likely decent outcome in 2-3 years after they reshuffle all the different pieces.  Not a fan of the pricing pressure talk today.  What price did you sell for Spek?
Title: Re: DWDP - Dow DuPont
Post by: LC on January 30, 2020, 01:38:07 PM
Sold mine before the open today. Took an ~8% loss. I will evaluate this again in a month . Thesis seems broken as I didnít like blurb about  pricing pressure at all. Looks like dead money or worse for a while. Live and learn. Sorry guys :(

For what it's worth I left about 10% on the table with 3M. I think your thesis (which I share) is generally correct/ The guy on the scale looks fat to me. Timing was just off. Correct process, unfortunate outcome. It happens.  ;D
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on January 30, 2020, 03:32:14 PM
Sold mine before the open today. Took an ~8% loss. I will evaluate this again in a month . Thesis seems broken as I didnít like blurb about  pricing pressure at all. Looks like dead money or worse for a while. Live and learn. Sorry guys :(

Probably dead money for 1 year, likely decent outcome in 2-3 years after they reshuffle all the different pieces.  Not a fan of the pricing pressure talk today.  What price did you sell for Spek?

My blended price is about $55.8. I sold premarket before the clock struck 7AM this morning after flipping though the earnings presentation. The key issues were:

1) weak guidance for 2020, which looks backloaded
2) volume losses and pricing pressure (note they raise prices overall)
3) They worked really hard to make the Q4 number palpable, but all KPIís seems to be trending the wrong way
4) wheels coming of from the Tefjin JV business (which they intend to sell off)

I will look at this again after a month to follow wash sale rules, but I doubt I am going right back in, although that depends on prices. I definitely left with the impression that itís not as good of a business than I thought when I bought in.
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on February 14, 2020, 02:26:37 PM
Big add for Lee Cooperman.
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on February 18, 2020, 05:17:44 AM
https://seekingalpha.com/pr/17781108-dupont-announces-leadership-changes
Title: Re: DWDP - Dow DuPont
Post by: dwy000 on February 28, 2020, 06:56:26 AM
Okay at $44.50 this is starting to look really interesting.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on April 01, 2020, 12:37:30 PM
Spek,

Any thoughts at these prices?  Would love to get your inputs.  I doubt many of us expected DD to trade here.  I bought some DD hedges and those paid out pretty well.  But I kept my shares as well. 
Title: Re: DWDP - Dow DuPont
Post by: undervalued on April 01, 2020, 01:30:09 PM
Spek,

Any thoughts at these prices?  Would love to get your inputs.  I doubt many of us expected DD to trade here.  I bought some DD hedges and those paid out pretty well.  But I kept my shares as well.

What's the most effective way to hedge DD? I am trying to learn how to hedge other positions other than DD.
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on April 01, 2020, 01:55:34 PM
At this point, probably just position sizing or a pair trade. Options are insanely expensive. If the company will weather the storm, just take the pain at these levels. Ive danced around this a bit and as a result have now about a 2.5-3% position with a cost in the low $50s. I rule!
Title: Re: DWDP - Dow DuPont
Post by: Spekulatius on April 01, 2020, 03:55:20 PM
Spek,

Any thoughts at these prices?  Would love to get your inputs.  I doubt many of us expected DD to trade here.  I bought some DD hedges and those paid out pretty well.  But I kept my shares as well.

I have no opinion right now. I donít buy it back and quite frankly, unless a business is absolutely bulletproof, I am inclined to just wait a couple of month and see what the fundamental looks like post Covid-19.

Let face it, at $70, this wasnít really cheap. It was only cheap relative to very bloated comps. It will be interesting to see how they hold up in a recession. I would particular look at retaining pricing power.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on September 09, 2020, 06:05:43 PM
IFF (NYSE:IFF) (Euronext Paris:IFF) (TASE:IFF) and DuPont (NYSE:DD) announced today that Nutrition & Biosciences, Inc. (ďN&BĒ) has priced an offering of $6.25 billion of senior unsecured notes, comprised of the following tranches (collectively, the ďNotesĒ): $300.0 million aggregate principal amount of 0.697% Senior Notes due 2022; $1.0 billion aggregate principal amount of 1.230% Senior Notes due 2025; $1.2 billion aggregate principal amount of 1.832% Senior Notes due 2027; $1.5 billion aggregate principal amount of 2.300% Senior Notes due 2030; $750.0 million aggregate principal amount of 3.268% Senior Notes due 2040; and $1.5 billion aggregate principal amount of 3.468% Senior Notes due 2050.

If this is what the debt capital market looks like, I think DD have 50-100% upside from here.  With Q2 out now, the auto business is a shitshow.  But the other 3 segments held up well.  Also divested a non-core business for $725mm

WILMINGTON, Del. Sep. 9, 2020 Ė DuPont (NYSE:DD) today announced it has
divested its trichlorosilane (TCS) business and its equity interest in the Hemlock
Semiconductor joint venture to Hemlock for $725 million. The deal has received
regulatory approval and was closed at signing. DuPont received pre-tax cash proceeds
of $550 million at closing and expects to receive additional pre-tax cash consideration of
$175 million over the next 36-months associated with the settlement of an existing
supply agreement dispute with Hemlock.
Based in Midland, Mich., the TCS business produces trichlorosilane, a key raw material
for Hemlock Semiconductor Operationís production of high-purity polysilicon and other
industrial chemicals.
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on October 29, 2020, 12:50:32 PM
https://seekingalpha.com/pr/18063318-dupont-reports-third-quarter-2020-results

This has been quiet. Stock was in favor/popular for a bit, then went out of favor not coincidentally as it got really, really cheap...now its just humming along nicely.
Title: Re: DWDP - Dow DuPont
Post by: longlake95 on January 06, 2021, 10:29:02 AM
Anyone thinking of taking the exchange offer to convert into the nutrition & bio business, then into IFF. Since DD has run up so much and is get fully valued, may be moving into IFF which is much less cyclical maybe a good move. The other side of that is I'd lose Ed Breen as my CEO...
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 06, 2021, 10:38:23 AM
I swapped this into BRK today. Its probably still good, but when you get 50% inside a year on a stock like Dupont, and then see Berkshire just sitting there like the fat girl at the end of the bar......
Title: Re: DWDP - Dow DuPont
Post by: longlake95 on January 06, 2021, 10:42:05 AM
That's a good idea Greg. Thanks... I'll think about that...

Are the lights on in the bar?
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 06, 2021, 10:44:13 AM
For me, mostly because I own a decent position already.  Going OTM allows me to pick up quite a bit of exposure without adding a ton of capital.  Going ITM results in lower premium, but less overall exposure.  I bought some Berry Calls and LEAPs when it traded to the $37-38 range.  I bought the $45 and $47.50 calls and LEAPs.  Those are mostly ITM now.  It's kind of how my brain is wired.  I generally think if the re-shuffling of companies will reveal a price in the $80s-90s, then paying $3 for the $65 will likely serve you well.  Heck, who knows, maybe some of that cyclical actual grows for a change.  Although with the Corona Virus, it looks like it may not.  But there are literally rumors from Bloomberg that this company will be split into 4. 

Nothing is sacred at Ed Breen's DuPont.

If you ask me a year ago that we will go into full lockdown and somehow DD will come out with a $77 print today, I would probably tell you you're smoking some good dope.  The $65 LEAPs are about $12-13 today.  That $3 LEAP premium allowed me to increase my exposure by about 80% while just increasing my capital outlay by about 5%. I think if you are a small manager or an individual, you should consider using LEAPs to size up your positions when they fall in price or stay stagnant for a while.   Okay, let's not jinx ourselves now!!! I have Berry and DD LEAPs that will both expire in about 9 days and they are both almost 4x at this point.  I remember talking to another manager back in Mar and April and thinking that DD will be worth about $100 in 2022-2023 and I can buy it at $28/$30.  That's a triple in 2-3 years.  Somehow, I only bought an incremental 5-10%.  Say whatever you want, these specialty chemical companies are amazing businesses.   
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 06, 2021, 10:55:38 AM
That's a good idea Greg. Thanks... I'll think about that...

Are the lights on in the bar?

Always on.

(https://media.tenor.com/images/d9c75fd2d757ba985ab63c2d3623a147/tenor.gif)
Title: Re: DWDP - Dow DuPont
Post by: dwy000 on January 06, 2021, 11:09:01 AM
I swapped this into BRK today. Its probably still good, but when you get 50% inside a year on a stock like Dupont, and then see Berkshire just sitting there like the fat girl at the end of the bar......

That was pretty funny.  And accurate.
Title: Re: DWDP - Dow DuPont
Post by: longlake95 on January 11, 2021, 07:41:54 AM
what up DD?
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 11, 2021, 09:33:38 PM
I have been thinking about whether I should exchange my DWDP for IFF.  You get 7.5% extra IFF shares.  But then I look at IFF valuation and I just can't stomach it.
Title: Re: DWDP - Dow DuPont
Post by: bbarberayr on January 12, 2021, 05:29:25 AM
I've been trying to decide on the DD for IFF swap as well.  DD shareholders will almost certainly end up with some IFF shares through the clean-up process as it is very unlikely the trade for IFF share is fully subscribed and DD also indicates this in the document.  DD has 733 million shares and it would take 210 million to be tendered to fully subscribed.

Maybe the best approach is just to sit on my hands, get the IFF shares and hope that the value of these is more than the drop we see in DD (due to N&B being out of the company).
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 12, 2021, 09:15:20 AM
That 7.5% premium in IFF is really interesting though.   I think there is a bit of technical where a lot of event driven funds are probably driving up prices of DD and shorting IFF for this trade.  Post deal, the rubber band may coil back the other way.  Gregmal probably knows this better.   I am kind of incline to tender almost all of my DD for IFF.   This is now one of my largest position through appreciation and also the $65 LEAPs being about $21 in the money.  At one point, I think the LEAP was about $1.00 late last year and that's been crazy 20 bagger.  My cost is about $3.50.  I kind of felt that this split off was going to unlock value and the volatility was unassuming before Covid.

I don't know why I haven't taken any chips off the table on the LEAPs.  Normally, I would pare it down. But I am glad so far that I haven't.  It probably has a lot to do with the LEAPs needing to go to end of Jan to qualify for long term cap gain.  So I may sell some DD shares and exercise the LEAPs and then exchange them for IFF.  I may actually tender 50% of my shares for IFF.  DD at below $30 was a steal of a life time. 

One thing that I have noticed about these specialty chemical companies is that they are very good businesses.  But they get really whipsawed during cresses.  So if you understand a few them well and wait for the deep sell off, I can they are great "wish list" companies because they actually could selloff and you can pick them up.   
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 12, 2021, 09:34:16 AM
I dont have a specific read here other than a general observation that Ive started to see with stuff like this, GM, etc. Kind of sleepy but decent companies showing signs of awakening. You can effectively remove the bulk of your position, free up most of the cash, and then go out the chain, 2022, 2023 with some OTM calls, for what I consider to be, peanuts. If my bull scenario plays out, the animal spirits may awaken these type of companies and in such a case they could easily rerate 2-3x higher over the next few years. A few weeks ago I re entered GM through some $50-60 2023 calls. I have nothing now, but was peaking around at the 2023 DDs as well. These things are NOT market resistant. We all see what they do when the market shits a brick. So basically being in cash with a call on ludicrous mode for pennies or dollars is IMO how I'd play it out.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 12, 2021, 10:52:48 AM
I dont have a specific read here other than a general observation that Ive started to see with stuff like this, GM, etc. Kind of sleepy but decent companies showing signs of awakening. You can effectively remove the bulk of your position, free up most of the cash, and then go out the chain, 2022, 2023 with some OTM calls, for what I consider to be, peanuts. If my bull scenario plays out, the animal spirits may awaken these type of companies and in such a case they could easily rerate 2-3x higher over the next few years. A few weeks ago I re entered GM through some $50-60 2023 calls. I have nothing now, but was peaking around at the 2023 DDs as well. These things are NOT market resistant. We all see what they do when the market shits a brick. So basically being in cash with a call on ludicrous mode for pennies or dollars is IMO how I'd play it out.

I have increasingly look to this method of capturing exposure while limiting downside.  This is exactly what Nassim Taleb talk about his 90/10 or 80/20.  It's probably better to have 10-20% in LEAPs on various sleepy large caps that may awaken.  Maybe I should just swap my Berry Exposure to LEAPs.  VNO maybe a good candidate as well.  I don't think it re-rates until people move back into offices.  These companies can kind of lull investors into sleep.  Heck, even I get a little worn down after being in Berry for 3 years.  I find that I generally get "tired" after 3 years being in a name and not having it work.   
Title: Re: DWDP - Dow DuPont
Post by: Gregmal on January 12, 2021, 12:35:09 PM
Yea I try to look at things as if you have a carpenters tool belt. In that belt is everything you need to handle the current market environment. You have your stock, bonds, derivates, etc. The key is finding the most efficient way to accomplish whatever it is that you are setting out to do. With DD, my objective was really just a drama free, better than average-ish large cap return. Sans the covid things, 50%+ in under a year is hard to argue with. But from here, if the goal is 10-15% of drama free return, theres plenty else like BRK or mf REITs where I think I can achieve that with much less risk. If my objective is playing DD for a rerating, then you can go up the chain, reducing your outlay while still having the trade on, just less exposure. GM is a perfect example of this. I held the stock for years. Had a negligible return but ultimately it was a waste of time. But the entire time there were rerating pitches and even in 2015 I remember hearing and seeing a credible path to $100. If AAPL can go from 12x to 40x in a few years, so can these things. I wouldn't be shocked if GM was $150 in a couple years should things get nutty. $4-5 for a call on that is free money if you do it enough. 
Title: Re: DWDP - Dow DuPont
Post by: rogermunibond on January 15, 2021, 06:43:57 AM
What's the issue with IFF over the past few years?  Organic growth seems tepid, capital allocation to buy N&B from DD is meant to recharge rev/earnings growth?

IFF seems like it should be in a high moat business but seems to be grossly underperforming.
Title: Re: DWDP - Dow DuPont
Post by: BG2008 on January 15, 2021, 06:44:56 AM
Sold out of all of my DD Jan 15th Calls for about $17 versus a $3.50 cost basis.  Had to take my daughter to the pediatrician and missed out on selling at $21 to $22.  Kids are expensive!!!!