DWDP - Dow DuPont

[Gregmal]

Oh Frutarom...what a gem that was. Those guys were some of the best I've ever seen at rolling up companies.

 

No background on that. Serious or sarcasm?

 

Dead serious. Israeli small cap that rolled up the space through low risk bolt on acquisitions. 10 bagger in like 5 years until IFF bought them.

[rogermunibond]

IFF overpaid for Frutarom though.

[BG2008]

Hot off the press!! This was literally like 20 minutes ago.  DuPont and IFF in a reverse morris trust agreement and will end up with 55.4% of the the combined NewCo.  DuPont share holders will also receive $7.3bn special dividend.  This transaction will be tax free to DuPont shareholders. 

 

IFF to Merge with DuPonts Nutrition

3:52 PM ET 12/15/19 | BusinessWire

 

 

Creates New Global Integrated Solutions Leader Serving Consumer-Oriented Food & Beverage, Home & Personal Care and Health & Wellness End Markets

 

The Deal Values the Combined Company at $45.4 billion on an Enterprise Value Basis, Reflecting a Value of $26.2 billion for the N&B business with Combined Pro Forma 2019 Revenue of more than $11 billion and $2.6 billion of EBITDA

 

Creates Significant Shareholder Value through Tax-Efficient Reverse Morris Trust Structure with Expected Cost Synergies of $300 million and Revenue Synergies of About $400 million by End of Year Three Post Close

 

#1 or #2 Market Positions in High-Value Ingredients Categories and Best-in-Class R&D Capabilities

 

Andreas Fibig to Serve as Chairman and CEO and Ed Breen Will Become Lead Independent Director; Combined Company Board to Consist of Directors from IFF and DuPont

 

IFF's Largest Shareholder, at 19% of Shares Outstanding, Has Agreed to Vote in Favor of the Transaction

 

Committed to Maintaining Investment Grade Balance Sheet and Expected to Delever Below 3.0x by Year Two Post Transaction Closing, While Maintaining IFF's Existing Dividend Policy

 

NEW YORK & WILMINGTON, Del.--(BUSINESS WIRE)--December 15, 2019--

 

Regulatory News:

 

IFF (NYSE: IFF) (Euronext Paris: IFF) (TASE: IFF) and DuPont (NYSE: DD) today announced that they have entered into a definitive agreement for the merger of IFF and DuPont's Nutrition & Biosciences (N&B) business in a Reverse Morris Trust transaction. The deal values the combined company at $45.4 billion on an enterprise value basis, reflecting a value of $26.2 billion for the N&B business based on IFF's share price as of December 13, 2019. Under the terms of the agreement, which has been unanimously approved by both Boards of Directors, DuPont shareholders will own 55.4% of the shares of the new company and existing IFF shareholders will own 44.6%. Upon completion of the transaction, DuPont will receive a one-time $7.3 billion special cash payment, subject to certain adjustments.

 

The combination of IFF and N&B creates a global leader in high-value ingredients and solutions for global Food & Beverage, Home & Personal Care and Health & Wellness markets, with estimated 2019 pro forma revenue of more than $11 billion and EBITDA of $2.6 billion, excluding synergies. The complementary portfolios will give the company leadership positions across key Taste, Texture, Scent, Nutrition, Enzymes, Cultures, Soy Proteins and Probiotics categories. The combined company's global reach and enhanced set of capabilities will enable the creation of innovative solutions to respond to customer demands and increasing consumer preferences for natural, healthier, and "better for you" products.

 

"The combination of IFF and N&B is a pivotal moment in our journey to lead our industry as an invaluable innovation and creative partner for our customers. Together, we will create a leading ingredients and solutions provider with a broader set of capabilities to meet our customers' evolving needs," said IFF Chairman and CEO, Andreas Fibig. "With highly complementary portfolios, we will have global scale and leading positions in key growth categories to capitalize on positive market trends, drive strong profitable growth for our shareholders and create opportunities for our employees. I have been impressed by N&B's management team, which shares our culture and values, and we look forward to welcoming them to the IFF family."

 

"DuPont and IFF share long and successful histories of customer-driven innovation and cultures of excellence, which is why I am confident that N&B will be well-positioned for its next phase of growth. I am pleased to join the Board of the combined organization and remain involved in unlocking the potential of this new company," said Ed Breen, Executive Chairman of DuPont. "We conducted a very thorough process leading us to the selection of IFF as the preferred strategic partner for N&B. I am excited about the future of the new company and all the opportunities it has for long-term value creation."

 

Strategic Rationale

 

The new company will be ideally equipped to deliver in-demand differentiated solutions for more natural, healthy products to an expanded customer base spanning both large multinationals and fast-growing small and medium-sized customers.

 

-- Best-in-Class Innovation Portfolio Creates Differentiated Offering and

 

Compelling Value Proposition -- The company will be an immediate leader

 

in the rapid consumer-driven industry evolution toward healthier, "better

 

for you" products. With leading R&D and applications development

 

capabilities and an expanded customer base, the combined company is

 

expected to significantly increase customer speed to market, create new

 

efficiencies in product development and provide critical consumer

 

insights for next-generation products.

 

-- Leading Positions Across High-Value Added Ingredient Categories -- The

 

company will have #1 or #2 positions across attractive Taste, Texture,

 

Scent, Nutrition, Cultures, Enzymes, Soy Proteins and Probiotics

 

categories.

 

-- Highly Attractive Financial Profile -- Shareholders will benefit from a

 

highly profitable business with strong cash generation. The company

 

expects to generate attractive top-line growth and enhanced margins with

 

further benefit from cost synergies and revenue growth opportunities. The

 

combined company will maintain IFF's current dividend policy.

 

-- Shared Culture and Vision, a Strategic Asset to Execution -- IFF and N&B

 

are customer-focused organizations with cultures that emphasize science

 

and creativity. The combined company will benefit from the best of both

 

organizations' experienced leaders and talented teams. Our shared

 

commitment to sustainability, along with the combination of our

 

complementary capabilities, will allow us to positively shape the

 

evolution of the industry.

 

"My team and I are excited about the opportunity to build the new company and create a new world-class leader. Our expertise together with IFF will best position us to address customer needs and ultimately redefine our industry," said N&B President, Matthias Heinzel. "IFF's innovation and customer-centric culture is remarkably similar to ours and we look forward to working with them for a smooth integration of our two organizations."

 

Governance and Management

 

Upon closing, the new company's Board of Directors will consist of 13 directors: 7 current IFF directors and 6 DuPont director appointees until the Annual Meeting in 2022, when there will be 6 directors from each company. Andreas Fibig will continue to be the Chairman of the Board and an IFF appointee, he will also continue as Chief Executive Officer. The company will be headquartered in New York. DuPont Executive Chairman, Ed Breen, will join the board of the combined company as a DuPont appointee and will serve as Lead Independent Director starting June 1, 2021.

 

The new company will draw upon the best talent from both organizations. IFF and N&B will form an Integration Office composed of leaders from both companies.

 

Financial Benefits

 

The combined company will have a strong financial profile, including:

 

-- Pro forma revenues of more than $11 billion based on fiscal year 2019

 

estimated results

 

-- Adjusted EBITDA margin of 23% pre-synergies and 26% with run-rate cost

 

synergies based on fiscal 2019 pro forma estimated results

 

-- Expected revenue growth rate in the mid-single digits over the long-term

 

-- Strong cash flow generation supporting an investment grade credit profile

 

-- Commitment to the continuation of IFF's historical dividend policy

 

IFF expects to realize cost synergies of approximately $300 million on a run-rate basis by the end of the third year post-closing. These cost synergies will be driven by procurement excellence, streamlining overhead and manufacturing efficiencies. In addition, the combined company's target is to deliver more than $400 million in run-rate revenue synergies, which would result in more than $175 million of EBITDA, driven by cross-selling opportunities and leveraging the expanded capabilities across a broader customer base.

 

IFF is committed to maintaining an investment grade rating and plans to delever from approximately 4.0x at transaction close to below 3.0x by year two following closing. Following the close of the transaction, IFF expects that substantially all of the debt of the combined company will be pari passu.

 

Guidance

 

IFF is affirming its existing 2019 full-year guidance. The company reconfirms its full-year projections for sales to be between $5.15 billion and $5.25 billion with adjusted EPS to be between $4.85 and $5.05 and adjusted EPS excluding amortization to be between $6.15 and $6.35.

 

DuPont reconfirms its expectations for total annual revenue of approximately $21.5 billion and an adjusted EPS(1) range of $3.77 to $3.82. DuPont expects operating EBITDA to be at the low end of the previously provided range, primarily driven by temporary supply chain disruptions in Safety & Construction (S&C) and Electronics & Imaging (E&I).

 

Transaction Details

 

The combination will be executed through a Reverse Morris Trust transaction. Upon completion, DuPont shareholders will own 55.4% of the combined company and IFF's shareholders will own 44.6%. In addition, at the time of completion, DuPont will receive a one-time $7.3 billion cash payment, subject to adjustment. The transaction is expected to be tax-free to DuPont and its shareholders for U.S. federal income tax purposes.

 

Financing and Approvals

 

(MORE TO FOLLOW) Dow Jones Newswires

 

December 15, 2019 15:52 ET (20:52 GMT)

 

 

[Gregmal]

Good things happen when you go to the front of the net...voila

[kdk77]

The rest of the businesses on their own are probably not going to last forever. They might be sold off. Chemical world went through major upheaval in the last few years. I don't think this is the end.  More deals to follow I guess.

[Spekulatius]

Note that DD conveniently guided earnings down a bit from ~$3.95 to ~$3.8/ share. This will keep a lid on DD stock to some extend.

[BG2008]

Note that DD conveniently guided earnings down a bit from ~$3.95 to ~$3.8/ share. This will keep a lid on DD stock to some extend.

 

I think specialty is tough this year.  This is consistent across the board with other specialty names that I own. 

[Spekulatius]

Reading the merger presentation on DD’s IR website, it seems like the main benefit of this transactions are

1) somewhat levered recap - DD remainco gets $7B

2) they merge with IFF which currently has a ~16x EBITDA valuation

3)  $300-400M in merger synergies and creating the largest company in their niche

 

Seems alright when the implied valuation of the company is ~11x EBITDA. I think it is correct that some of the remainco business lines could well end up being merged as well. It looks more and more like Tyco 2.0 to me.

[BG2008]

Spek,

 

Can you expand on this a bit more.  I would love to hear your thoughts on DD's product in detail.  Call me a nerd, as much detail as you are willing to spare on this board. 

 

From another thread you said the following - I have a material science and physics background and work in adjacent industries and can understand in broad terms how DD customers  think about their products, pricing power, replacement hurdles for example. I have no such idea about ESTC products. From my experience a lot of people who own these stocks don’t have it either. The crucial test is always if they average down , in case the stock price drops. After all, if something truly becomes cheaper , why wouldn’t you want to own more.? Of course there is always the very real risk of  thesis being broken, but if you can’t tell a real problem from a perceived or transient one, what do you really know?

 

BG,

 

I realize this Q was is for Spek but I'll give you my (unasked for  :D) opinion as I have a very similar (nearly identical background - metallurgy side of MatSci) background from past life. When it comes to DD products, and specialty chemicals (in my case resins, adhesives, etc.) in general, once we had our processes in order and working, we would keep getting the same chemicals. It would take take 1)  discontinuation of a product (happened few times for environmental/hazard concerns) 2) draconian price increases. The few times when we switched products, it took about a year of testing the alternatives (best case) and sometimes would stretch into several years to confirm that the materials would perform the same way and, more importantly, fail exactly the same as the one before it. This involved destructive (e.g.,thermal/mechanical testing), non-destructive tests (e.g., conductance), countless hours (think in the 1,000s) of microscopy (SEM/TEM/X-ray). Basically, a production that nobody wanted because it was terribly expensive, taxing on labor (all those tests frequently require specialization), and not very exciting.

 

I recall a few times when we were alerted of either coming price increases or discontinuation of a product and we would just stock up.

 

In the similar vein, engineers/scientists swear by the materials they "grew up" with. Getting a new boss with his own set of experience was a particularly exciting time (/sarcasm).

 

In a nutshell, the economy would dictate the quantity of a chemical needed but not the chemical. The price was generally assumed to go up.

 

I second what infoeisone started, once a material for a process is locked in (like a photolithography agent, cleaning agent or OLDD material ) it is unlikely to be changed. The reason is simple - many process are just too complex and the unknown unknowns of a change require extensive requalification of the entire process. This is almost never going to happen, unless a process is clearly broken . The cost benefit ratio to initiate a change is very unfavorable, the consumable are typically cheap and may be let say $10/ wafer, but the value of the wafer at that point as work in process may well be thousands of $. So initiating any change is generally a bad risk reward and will receive a lot of pushback from other stakeholders.

 

For other products, I think Duponts  brand name is important. For example, I imagine there would be some pushback when safety equipment like bulletproof vests were to be bought  by an adventurous buyer made from a generic product rather than Kevlar. Same is even true for something like cut resistant gloves. Clear room or Hazmats suits are often called Tyvek suits. Yes, other materials do exists, but Tyvek is what is in everyone’s mind and people keep using and reordering them. All the above translates into pricing power. Now given, the volumes will change with the level of activity for each of these products they are  going to be produced and that can and will fluctuate, but generally I have not seen a situation where a plant manager will risk losing hundred thousand of dollars and lost sales to save a few hundred dollars for a consumable even in a severe downturn.

 

On Tyvek, does anyone here know why TyVek building wrap seems to be the only building wrap used in new home construction?  They seem to have a very large market share and I still don't fully understand what it does but I certain see a lot of it when I drive around.

[Spekulatius]

On Tyvek, does anyone here know why TyVek building wrap seems to be the only building wrap used in new home construction?  They seem to have a very large market share and I still don't fully understand what it does but I certain see a lot of it when I drive around.

 

I think it’s just a brand name thing. There are some competing products out there (Blueskin etc.), but Tyvek seems to have by far the largest name recognition and seems to have the largest market share in an industry that doesn’t really embrace change (home building).

 

As for what it does, it’s moisture barrier and keeps moisture out, while at the same time allowing water vapor to get out, thus avoiding condensation in the walls.

[LC]

It's a proven product and as Spek alluded, the industry does not embrace change. For good reason I might add: if you screw up the envelope you could be looking at labor and material repair costs that are exponential orders of magnitudes greater than saving a bit vs Tyvek.

[BG2008]

DD is trading at a bizare price.  This is what we know

 

Nutrition and Bio business is going to merge with IFF for 55% of merged Co plus $7.3bn of cash payment

Bloomberg reported that the Electronic and Imaging maybe sold or Reverse Morris Trust per this news article  https://www.bloomberg.com/news/articles/2020-01-16/dupont-is-said-to-explore-divestiture-of-electronics-unit?sref=crzXzEVm

 

https://www.bloomberg.com/news/articles/2019-11-07/dupont-is-said-to-explore-divestiture-of-transportation-unit?sref=crzXzEVm

 

 

So we know that all 4 segments will be pure play in the next year.  The IFF deal values that segment at almost $25bn and the current EV is roughly $57.5bn.  With some share buyback in 2019, the EV is likely $2bn less.  So call it $55bn less $25bn or roughly $30bn of EV for $4bn of EBITDA assuming $5.5bn of EBITDA less $1.5-1.6bn of EBITDA for Nutrition.  So the remaining business trades for 7.5x EV/EBITDA.  Kind of cheap for something with these margins etc? 

[Guest Schwab711]

How are you calculating $57.5b? CIQ is showing $60.5b EV and buybacks would increase EV since there's less cash.

 

$62.5b - $25b = $37.5b EV pro forma

 

=> 9.4x EV/EBITDA (8.9x without accounting for buybacks) for the stub?

[BG2008]

740mm S/O at $57.8 equals $42.8bn

$15.6bn Long Term Debt

Net Cash and Short Term Debt net out

EV equals $58.4bn

 

I generally look forward 3-4 quarters. 

 

5.5bn of EBITDA (less than I previously anticipated) less $1bn of cap ex, less $700mm of interest expenses, less $588mm of cash taxes (due to $2bn of amort and Depreciation), equals $3.2bn of FCF to shareholders

 

DD pays $888mm of dividends which leaves about $2.3bn available for share buybacks.  At today's price, they will probably commit $2bn to share buybacks.  Although they have made some water filtration acquisitions. 

 

$2bn buys back 34.7mm shares which means 705mm S/O 12 months out $40.7bn MC plus $15.6bn of debt equals $56.3bn

 

Remaining EBITDA of roughly $4bn.  But you take out $25bn which is roughly $31.3bn pro-forma on $4bn of EBITDA. 7.8x EV/EBITDA roughly.

 

The thing is that any transactions likely values the Transportation and Electronics at higher than 7.8x EV/EBITDA.   

 

[BG2008]

DD has disappointed in 2019 in that I am about 750mm off with the EBITDA.  Part of it is the cyclical portion of the business declining instead of growing.  Part of it is that DD did a bad job explaining G&A cost post deal as I have mentioned before.  But I generally like the spins and RMTs.  They tend to combine companies in similar offerings and make them stronger IMO. 

[BG2008]

I think with DD and with CHTR, you need to skate to where the puck is with regards to S/O.  My general thought is that if they were buying back shares in the $60 and $70s, they are definitely buying back shares now.  The longer that shares trade below intrinsic, the more value they create in the long run. 

[Guest Schwab711]

Thanks

 

I was wrong, buybacks should be neutral to EV. If $2b spent on buybacks to reduce shares then ST debt and cash don't net anymore.

 

Minority interest and capital leases should be included in EV (I wouldn't add pension given the timing of when the underfunded portion will be made whole). EV = $59.5b and stub at ~8.6x then.

 

Not trying to be negative but I think DD is roughly fairly valued (maybe slightly undervalued on SOTP basis). If DD could organically expand the stub businesses then ROIC would be quite high. Historically, they have needed to expand through M&A, which has far lower returns. Assuming a similar low return, low growth business, 8.6x is in the neighborhood of reasonable.

 

The stub portion likely has a far lower EBITDA to FCF conversion. Nutrition & Biosciences was probably ~$300m of 3Q19 FCF.

 

I'll keep watching. Maybe the stub businesses surprise me.

[BG2008]

Spek, got any thoughts?

[Spekulatius]

Spek, got any thoughts?

 

Well I don’t have much original to write beyond what was talked about. I think DD is cheap, but it’s not extremely cheap. in the past, business like this have traded for 8x EBITDA at times.

 

I agree on looking where the luck is going to be, but I don’t think Mr Market is giving them any credit for improvements that are yet to come. It’s a bit like LBTYA where you have restructuring and negative organic growth going on at the same time and the latter one seems to determine the price of the stock.

 

It’s not just DD either that is struggling, BASF (which I have been following for decades) is struggling too with negative organic growth and also pricing pressure (in their commodity business). Since chemicals tend to be early indicators of economic activities, this makes me question a bit the positive economic outlook quite frankly, but that’s another story.

 

As far as restructuring or JV the electronic  matl unit is concerned, I considered this a hidden gem, as they have some very high margin business lines in their (40% EBITDA margins if I remember correctly), that should trade at nice multiples, assuming their are not cigar butts. So hopefully this will be a value enhancing move like the JV of the nutrients business. It just takes time and the market looks at this with a very sceptical view, which may not be thet surprising, given the fact that the namesake  predecessor has been mismanaged for decades.

 

Anyways, I added a few shares today.

[BG2008]

Thanks

 

I was wrong, buybacks should be neutral to EV. If $2b spent on buybacks to reduce shares then ST debt and cash don't net anymore.

 

Minority interest and capital leases should be included in EV (I wouldn't add pension given the timing of when the underfunded portion will be made whole). EV = $59.5b and stub at ~8.6x then.

 

Not trying to be negative but I think DD is roughly fairly valued (maybe slightly undervalued on SOTP basis). If DD could organically expand the stub businesses then ROIC would be quite high. Historically, they have needed to expand through M&A, which has far lower returns. Assuming a similar low return, low growth business, 8.6x is in the neighborhood of reasonable.

 

The stub portion likely has a far lower EBITDA to FCF conversion. Nutrition & Biosciences was probably ~$300m of 3Q19 FCF.

 

I'll keep watching. Maybe the stub businesses surprise me.

 

Schwab711,

 

I think you are too hang up on the fact that DuPont historically has to rely on acquisitions to grow.  In the matter of 3-4 yeas, Dow and Dupont were merged.  Different business lines were combined and then re-arranged into pure plays.  Non-cores are being sold off and the remaincos are being high graded with regards to ROIC.  Am I the only one who sees a lot of value being created?  They are cutting cost, selling non-core, buying some water filtration businesses, and doing JVs, Reverse Morris Trust, etc left and right.  This is NOT YOUR PARENTS' DuPont.  This is Ed Breen's DuPont.  I think value guys have a tendency to extrapolate too much to the past when you have a new sheriff in town. 

 

On valuation, is 8.6x or 7.8x cheap, extremely cheap, or not cheap at all?  I think you will get a 15-25% CAGR in 3 years at today's prices due to

 

1) Additional parts being JV's at low to mid teens EV/EBITDA multiple. 

2) FCF being used for share buybacks and it should accelerate now.  Actually, the lower the price, the better the outcome 2-3 years out.  Charter went through a similar process. 

3) EV should be reduced over time with share buyback because you are using FCF (earnings) to cannabalize yourself.  This was one of my biggest investing mistakes in the last decade.  With smaller companies, the cash will simply pile up.  Yes, the EV shrinks in that case.  But the equity market cap stays the same.  With share buybacks, it can really improve your returns when every share that gets retires earning 30-50% accretion. 

4) I disagree that cash conversion for remaining company is low.  They are telling you that cap ex is $1bn.  There maybe some short term working capital tie up.  Specialty chemical companies can get tied up that way.  Of course, there is also a ton of noisy restructuring and integration cost along the way.  With ebbs and flows in working capital, the cashflow eventually reflects an EBITDA less interest expense less cash tax when smoothed out over a few years.   

 

Let's assume that the fair value of the remainco is 12-13x EBITDA.  Let's say that the remainco does currently trade at 8x EBITDA.  Debt is currently 3x.  So you have a 5x equity that will likely be re-valued by another 4-5x.  The puck is constantly moving around here.  I will sit down and do a spreadsheet at some point.  But mentally, I know that that the pro-forma is much higher going forward. 

 

If Ed Breen isn't there, I would not be as interested.  The market is skeptical and there is a ton of fatigue with this name.  Any analyst pitching this to their PM is likely getting a death stare at this point.  It hasn't worked and it hasn't worked for a long time.  But the parts are finally being split up and RMT, sold, or JVed. 

 

I think the outlier is the PFAS.  I just never have any confidence in my ability to handicap legal.  I think part of the reason why DD trades where it trades at is due to recent headlines like the PFAS lawsuits. 

 

Like Spek, I have bought a few more shares.   

[Guest Schwab711]

Good luck to you. I hope this works out.

 

1) I generally apply no positive value due to the jockey (though it may be a negative). There's too many examples of highly touted managers not performing well or plainly hurting minority interests to think that I have the ability to judge a man's character based on 10-K's and word-of-mouth reputation. This sounds like the major difference in our opinion.

 

2) I've looked at current DuPont. Fully aware of the organizational changes. The RemainCo units are eh and the IFF/Nutrion merger is at nose-bleed EV/EBITDA. I'd rather own MCO/SPGI or similar quality at the same valuation. The 8.5x stub kicker isn't enough of a sweetener. Again, maybe I'm underestimating the JVs, or the synergies that will be realized, or other. I don't see 15%-25% CAGR without some serious multiple expansion and that's harder to bet on.

 

Every segment in RemainCo had negative Y/Y sales growth in 3Q19. Transportation & Industrial, the worst performing segment, took big hits in mobility and I&C. 8.5x isn't exactly cheap given trends. Maybe it reverses and that will lead to rising multiples. I have no insight into that.

 

3) Why I think RemainCo segments are 'eh'.

 

IFF had 3Q19 EBITDA of ~$280m. If we normalize IFF (NI + D/A + SBC - capex), then 3Q19 FCF was

 

IFF Dep as a % of EBITDA was ~10% (30/280). DD's Nutrition & Biosciences division had Dep as % of EBTIDA was probably ~$40m.

 

For DD's N&B segment in 3Q19: ($250m NI + $40m D/A - $45m capex) ~= $245m FCF. This is likely low since there's some amortization in N&B segment that acts as a tax shield.

 

DD N&B FCF / EBITDA >= 70%

 

DD Parent's normalized 3Q19 FCF was roughly equal to NI + Amortization + impairment ~= $700m

 

DD RemainCo FCF <= $700m - $245m = $455m

 

DD RemainCo FCF / EBITDA <= 455 / $1,050 = 43.3%

 

4) Growth concerns. Not only did I consider DD and DOW's history in this consideration, I've looked at comps. Almost every specialty materials/chemical company grows through M&A. Occasionally R&D works out, but that's unlikely to move the needle at DD at this point. There will certainly be some organic growth at some point, but I think assuming that Breen is done with M&A/financial wizardry and everything will be high return organic growth from here doesn't match available evidence.

 

 

------

 

At 8.5x EBITDA, RemainCo EV is valued at ~$8.9b. FCF is at most $1.8b (again, this could easily be $1.0b or $2.0b, depending on amortization in N&B segment, reasonableness of extrapolating one quarter of FCF, ect). I don't disagree RemainCo may be undervalued. It's also declining and that FCF may contract quickly given the margin profile. IFF/N&B business isn't attractive to me at current valuations. I think it's relatively fairly valued. It's a large part of DD's overall valuation going forward. Even if RemainCo and JV valuation increases, we are talking about 10%-20% return on large multiple expansion. There's also a conglomerate/complexity discount that should be applied to this type of SOTP thesis.

 

Overall, I think there are better ideas than DD, but I don't think this is a bad idea. That's why I've spent the time I have on it.

[undervalued]

DD will be announcing earning on 30th if anyone thinking of adding more before then. FYI

[Gregmal]

Im leaning to buy a little more if we get closer to $55. The issue IMO is that theres zero real urgency to buy a stock like this. Its a good but not great biz. Cheap but not super cheap. Out of favor sector. It'll do fine if the financial engineering aspect plays out and is done in a prudent manner. So thats what counts. But its not something I see anyone excited about buying. Time is your friend here, just not tomorrow.

[BG2008]

Most of my money is made in situations of "it's cheap, time is your friend, just not tomorrow"  :)

[Gregmal]

I gave in a bought a little more today. You only live once.