DuPont plans IPO to start Conoco divestiture

E.I. DuPont De Nemours & Co., Wilmington, Del., plans to begin divesting its wholly owned, Houston-based petroleum subsidiary, Conoco Inc.

The first step will be an initial public offering of as much as 20% of Conoco's common stock. The IPO is expected to be one of the largest in history, with a possible value of $3-5 billion. DuPont expects to complete the IPO by yearend.

Strategy

DuPont Pres. and CEO Charles O. Holliday, Jr., said, "An IPO gives us maximum flexibility. DuPont will have access to cash from the IPO and, at the same time, will benefit from Conoco's ongoing financial contribution as we consider the options for divestiture.

"Given this, as well as Conoco's plans for the future, the time is right for Conoco to be given the opportunity to operate as an independent entity."

Holliday said his firm intends to divest its remaining Conoco interests as soon as is practical. This move could include further stock offerings or a spin-off to shareholders.

"The determination as to the form and timing of such divestiture will be based on cash needs and market attractiveness," said DuPont.

Conoco's performance

Holliday admitted that Conoco has been a "strong contributor" to his firm's earnings and cash flow for almost 17 years. "However," he added, "we believe that value and growth can be enhanced for DuPont's materials and life sciences businesses, and for Conoco, by separating the two operations.

"We are building on our 10-year strategic direction and intensifying our focus on life sciences, making it imperative that we rapidly accelerate our investment to capture market opportunity and increase shareholder value."

Conoco Pres. and CEO Archie W. Dunham said, "There are a large number of investment opportunities for energy companies today, largely due to widespread privatization and deregulation around the world. The IPO will provide Conoco with the means to capitalize on those opportunities.

"Conoco is a much stronger company today than it was just a few years ago," Dunham added. "We significantly reduced our costs and upgraded our asset portfolio. We had record earnings in 1997."

Dunham will continue to serve as president and CEO of Conoco. DuPont, which will hold more than 80% of Conoco after the IPO, will retain majority membership on the board. Edgar S. Woolard Jr., retired chairman of DuPont, will be the nonexecutive chairman of Conoco. After DuPont reduces its interest in Conoco to less than 50%, Dunham is expected to become chairman.

Bad news for DuPont?

Standard & Poor's (S&P) has placed its DuPont ratings on credit watch, with negative implications.

"The divestiture of this business, which accounted for about 24% of 1997 after-tax income, adjusted for nonrecurring items, and 32% of total assets, would reduce DuPont's business diversity," said S&P.

"Conoco, over time, has been an important source of earnings and cash flow generation during economic downturns. Also, the decision to exit the energy business comes at a time when DuPont's financial profile has been stretched by a series of acquisitions intended to bolster its emergent agricultural biotechnology business and several of its more traditional chemical operations."

S&P added that, "Although the final financial profiles of the divested energy operations and the remaining DuPont businesses remain to be determined, there is a good likelihood that there will be a deterioration of credit quality."