Dupont Corporation: Sale of Performance Coatings

22 Pages Posted: 30 May 2017

See all articles by Susan Chaplinsky

Susan Chaplinsky

University of Virginia - Darden School of Business

Felicia C. Marston

University of Virginia - McIntire School of Commerce

Brett Merker

University of Virginia - Darden School of Business

Abstract

In January 2012, Ellen Kullman, CEO and chairman of DuPont, must decide whether to retain or sell the company's Performance Coatings (DPC) division. This is an introductory case on valuing a leveraged buyout. The case focuses on a publicly listed corporation's decision to divest a large division and asks students to compare the division's value if it remains under DuPont's control or is sold to an outside party. The transaction size of approximately $4 billion is too large for potential strategic buyers in the industry, making private equity (PE) firms the most likely bidders. The case provides a base-case adjusted present value (APV) model of DPC as a stand-alone company and gives students specific assignments to adjust it to reflect the division's potential value under PE ownership (e.g., EBITDA growth, multiple arbitrage, and increased leverage). The case is designed to illustrate and discuss the differences between a public company's valuation based on unlevered free cash flows and a PE sponsor's valuation based on residual (levered) cash flows.This case has been successfully taught in a second-year elective course covering entrepreneurial finance and private equity and in an advanced undergraduate course on corporate finance. It is appropriate for use in classes on private equity, advanced corporate finance, or deal valuation.

Excerpt

UVA-F-1709

Rev. May 19, 2014

DUPONT CORPORATION: SALE OF PERFORMANCE COATINGS

In January 2012, Ellen Kullman, CEO and chairman of DuPont, was reviewing an internal report on the company's Performance Coatings division. A month earlier, she had dismissed rumors that the business was up for sale after reports had surfaced that the company had hired Credit Suisse to seek potential buyers for it. Kullman stated that the business would be given a “chance” to see if it could meet certain performance targets, saying: “From a performance standpoint we will give them a chance to see if they can get there. If any of our businesses can't obtain their targets, obviously we will look at alternatives.” For several years, the business, which produced paint for the auto and trucking industries, had struggled with low demand and high raw-material costs that had hurt profits. During her tenure as CEO, Kullman had attempted to move DuPont away from commodity chemicals to a specialty chemical and science–focused products business. It was no longer clear whether DuPont Performance Coatings (DPC) fit her strategic vision for the firm. Still, the issue was what course would produce the greatest value for shareholders. She had called for an internal review of the business that fall to assess its value to DuPont compared to what outside parties might pay for it. Those reports were now complete, and she would have to decide whether to retain the business or sell it and, if so, at what price.

History of DuPont

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Keywords: LBO, leveraged buyout, valuation, divest, private equity, strategic buyer

Suggested Citation

Chaplinsky, Susan J. and Marston, Felicia C. and Merker, Brett, Dupont Corporation: Sale of Performance Coatings. Darden Case No. UVA-F-1709, Available at SSRN: https://ssrn.com/abstract=2974519 or http://dx.doi.org/10.2139/ssrn.2974519

Susan J. Chaplinsky (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4810 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/chaplinsky.htm

Felicia C. Marston

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-1417 (Phone)

Brett Merker

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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