DuPont: Delrin Divestiture Values Business at a Low Multiple, but Deal Structure Is Value Neutral

On Aug. 21, DuPont DD announced a transaction to divest of 80.1% of its Delrin business to private equity firm TJC Partners. The deal values the Delrin business at $1.8 billion. We estimate this is roughly a 10 times enterprise value/EBITDA multiple (based on Delrin’s 2021 operating EBTIDA, the last time DuPont disclosed Delrin’s EBITDA). While the deal is slightly below the average multiple for comparable transactions (11.6 times based on PitchBook data), the deal structure makes it value neutral to DuPont. As a part of the deal, DuPont will receive $1.25 billion in cash proceeds and a $350 million note receivable, while retaining 19.9% of the business.

Having updated our model to incorporate the transaction, we maintain our $92 per share fair value estimate for DuPont. Our narrow-moat rating is also unchanged. At current prices, we view DuPont shares as undervalued, with the stock trading in 4-star territory at a little less than 20% below our fair value estimate.

Management expects the divestiture will close by the end of the year, which we think is a reasonable timeline. Once this divestiture closes, DuPont should be largely finished with the transformational divestitures the company has made after being spun off from DowDuPont in 2019. Since that time, DuPont divested its nutritional and biosciences business to International Flavors & Fragrances in 2021, the majority of its mobility and materials business to Celanese in 2022, and a number of smaller, noncore businesses. In our view, management received value-accretive prices for the two large divestitures (to IFF and Celanese). The firm has generally received fair valuations for many of the smaller deals. With the divestitures largely complete, we think DuPont will likely focus on incorporating the recently acquired Spectrum business into the electronics and industrial segment, while working to restore profits that will decline in 2023 as a result of the near-term global economic slowdown.