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DuPont Selling Coatings Biz to Carlyle

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Chemical and industrial products behemoth E. I. du Pont de Nemours and Company struck a deal with private equity firm Carlyle Group to divest its performance coatings business for $4.9 billion in cash. The transaction is expected to be closed in the first quarter of 2013, subject to necessary approvals.

DuPont intends to sell its performance coatings business to better focus on accretive businesses like agriculture and nutrition, bio-based industrials, and advanced materials. These businesses are expected to provide higher growth and margins over the long term and help achieve DuPont’s target of compound annual growth rate of 12%.

Though the performance coatings business’ net assets are valued at about $2 billion and it is expected to generate sales of more than $4 billion in 2012, but a pre-tax margin of only 6% in 2011 was reason enough for the divestiture.

The coatings business has contributed significantly to DuPont and by acquiring the unit, Carlyle will get hold of $250 million of DuPont's unfunded pension liabilities. Carlyle will likely utilize the technological innovations of the performance coatings unit and establish its presence in the emerging markets, particularly in China and Brazil. The transaction will be funded with equity from U.S. buyout fund Carlyle Partners V and Carlyle Europe Partners III.

Du Pont’s Performance Coatings segment is one of the world's leading motor vehicle coatings suppliers. The products offer high performance liquid and powder coatings to motor vehicle original equipment manufacturers (OEMs), the motor vehicle after-market, and general industrial applications, such as coatings for heavy equipment, pipes and appliances, and electrical insulation.

The Carlyle Group is a global alternative asset manager that invests across four segments – Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Funds Solutions – in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

DuPont is a global chemical and life sciences company and it released its second quarter 2012 results in July 2012. The company reported adjusted earnings of $1.48 per share for the quarter, exceeding the Zacks Consensus Estimate of $1.46 and the year-ago earnings of $1.37.

Growth was primarily driven by strong performance in agriculture, food and bioscience businesses, along with the company’s advanced materials business, which witnessed healthy results despite weak European markets.

Including one-time items, earnings came in at $1.25 per share versus $1.29 in the prior-year quarter. The fall in earnings reflects lower sales volumes across the company’s business segments and weak demand for titanium dioxide, especially in Europe and Asia.

Net sales grew 7% year-over-year to $11,006 million, driven by price hikes and portfolio changes, partially offset by unfavorable currency impact and lower sales volumes. However, sales missed the Zacks Consensus Estimate of $11,252 million.

DuPont, which competes with The Dow Chemical Company and BASF SE (BASFY - Free Report) , currently holds a short-term Zacks #3 Rank (Hold). Currently, we have a long-term (more than 6 months) Neutral recommendation on the shares of DuPont.

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