PE firms rush to gobble up low-growth chemical business units

Several weeks ago the C&EN (http://cen.acs.org/index.html) cover story profiled a number of low-growth specialty chemical business units that have been spun off into the hands of PE firms or to shareholders (http://cen.acs.org/articles/91/i45/New-Ways-Grow.html). Particularly surprising for me was DuPont’s decision to spin off its performance chemicals division, the division responsible for Teflon, refrigerants, and titanium dioxide pigments, to shareholders. When I think of DuPont, I think of fluorinated polymers and was pretty surprised to read a few months ago that this unit was on the auction block. It looks like no buyer emerged and the current DuPont shareholders will retain ownership over the new company, but between this and the sale of DuPont’s performance coatings business to the Carlyle Group for $4.9B earlier this year, it seems like DuPont might be faced with some mission drift. I recognize companies need to continually reinvent themselves and their products, but the performance chemical division made made $1.8B on $7.2B in revenue last year netting a nice 25% profit margin and representing 21% of DuPont’s total revenues. It was not a dog by any means and was jettisoned to focus on industrial and agricultural biotechnology, a division fives times larger in revenue than currently operates at an 18% margin. Products certainly have different life cycles and industrial and agricultural biotechnology are both hot areas at the moment, but DuPont has spent the last 215 years cultivating a core competency in the chemicals business and it seems unwise to abandon that. Similar mistakes were made with traditional pharmaceutical companies trying to move into the biologic space with Roche emerging as the clear winner by simply acquiring Genentech so perhaps it might be wise for DuPont to consider a similar strategy.teflon-300x225