FOOL PLATE SPECIAL
DuPont's Changing Face

DuPont has been an active deal-maker of late, last week selling its pharmaceutical division and today announcing it will sell a polyester business line. If these deals are any indication, in a few years DuPont could look nothing like it does today.

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By Paul Larson (TMF Parlay)
June 14, 2001

America's leading chemical company and FOOL 50 Index member DuPont (NYSE: DD) and its numerous divisions have always been active deal-makers, but the last couple of weeks finds the company especially engaged in trading business lines.

DuPont said this morning that it reached an agreement to sell its polyester manufacturing businesses in North and South Carolina to a subsidiary of the Mexican conglomerate Grupo Alfa. The two companies had a joint venture to create polyester staples that will also be dissolved when the sale is complete. The terms of the sale were not disclosed, but the price could not have been too good for DuPont: It will take a non-cash charge of between $0.15 and $0.17 per share to write off its stake in the division.

This news follows last week's blockbuster announcement that DuPont would sell its entire pharmaceutical business to Bristol-Meyers Squibb (NYSE: BMY) for $7.8 billion. This was several billion higher than most thought the drug business would fetch, and appears to be a fairly good deal for DuPont.

Last year DuPont's pharmaceutical division generated $1.5 billion in sales, or roughly 5% of the $29.2 billion the entire company gathered in sales. Meanwhile, the $7.8 billion price tag on the pharmaceutical unit represents approximately 13% of the total company's $58 billion enterprise value, which is equal to DuPont's market capitalization minus cash plus debt. In other words, DuPont sold a fairly small portion of itself for a hefty amount relative to the rest of the company.

The pharmaceutical unit's sale should give a boost to DuPont's earnings per share in the short term. A good chunk of the cash the sale will generate will go toward share repurchases, which will reduce the number of shares outstanding earnings must be spread over. The cash could also be used to purchase other businesses, such as the Soy protein business in China DuPont announced it was buying for $20 million earlier this week.

The bottom line is that DuPont appears to be quickly transforming itself through wheeling and dealing business lines. It is no longer in the energy business at all after spinning off Conoco (NYSE: COC.A), and soon will no longer be in pharmaceuticals. (The sale of the polyester unit is a bit puzzling, since chemicals remain DuPont's core business.) Reports say DuPont could use proceeds from the drug sale to make acquisitions, as well as reinvest in its own business.

Whatever the company decides, investors must increasingly consider where the company is headed and what it envisions itself looking like in five years. If the recent deals are any indication, the rapidly changing DuPont will look little like it does today as it looks for new growth avenues. What the actual makeup of the company will be -- and whether the chemistry will work -- is anybody's guess.

Paul Larson loves Nascar racing, and is impressed with Jeff Gordon's two straight wins in the #24 DuPont Chevrolet. You can see Paul's stock holdings online. The Motley Fool is investors writing for investors.