Rumors Swirling Around DuPont’s Coatings Unit

A bunch of stories have been circulating that DuPont is putting its performance coatings business up for sale. The DuPont business makes automotive OEM coatings, which are applied in the assembly plant; automotive refinish coatings; and powder coatings. It earned $249 million in operating income on $3,805 million in net sales in 2010. It has been DuPont’s least profitable segment for the last three years. Bloomberg seems to have been the first out of the gate Friday afternoon. Citing “people who spoke on the condition of anonymity because the talks are private”, it reported that DuPont retained Credit Suisse to shop the business around. The value of the coatings business would be between $3 billion and $4 billion. The Bloomberg piece had DuPont selling the powder coating unit separately from the automotive coatings business. Reuters also had a story out Friday afternoon. It contained the same details regarding Credit Suisse as well as the price range for the business and cited “sources familiar with the matter.” The Reuters piece contained some analyst speculation that BASF, PPG, or AkzoNobel might be interested in the business. (I would personally go with Akzo out of those choices because I’m not sure that regulators would let PPG or BASF have the OEM paint business. Though, I think Akzo is already big in refinish. Perhaps “none of the above” is a better choice.) The Wall Street Journal published a story on the matter yesterday. It has the same details, citing “a person familiar with the matter”. When Kevin McCarthy from Bank of America Merrill Lynch asked about disposing of the unit in a conference call last week, DuPont CEO Ellen Kullman wouldn’t say much:
So one of the things I think that's been limiting DPC this year has been the raw material increases. I mean, energy and freight, I've just seen a lot of increases on their raw on the whole board, and I think that's been a drag on them as they really gone out. And I think they've done a tremendous job with new products and with customers getting improvements. So I think being stable for them in this environment is a very positive thing. So productivity, they continue to focus on it. Fixed costs as a percent of sales is down 110 basis points in the third quarter of '11 versus third quarter of '10. I still maintain and talk into the team there that we can get to a PTOI margin target of 10% next year, and we continue to drive hard on that. And we'll see where it ends up. We just -- John McCool's been there just a year now with the new team. I think they're making great progress, and we'll see where they end up.
Translation: We are trying to fix the business. We are making good progress. But some circumstances, such as raw material prices, are out of our control. Also, she said “we’ll see” twice. But she doesn’t use the word “options” once.

Author: Alex Tullo

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