DWDP - Dow DuPont

[BG2008]

https://finance.yahoo.com/news/dupont-considers-sale-biosciences-unit-182425104.html

 

"DuPont Considers Sale of Biosciences Unit That Could Fetch $20 Billion"

 

A $20 billion sale would equate to a roughly 13.5x EBITDA assuming a 2018 EBITDA of $1,475 ($1,600mm less $125mm) of standalone cost.  This multiple is higher than the current multiple of 10.8x EV/EBITDA.  Chemicals across the board have experienced macro headwinds in the first half of 2019.  Univar, Dupont, MMM

[BG2008]

I think the DuPont business deserves a closer look and I would love feedback from people who work in the specialty chemical business.  Across the board, all chemical businesses have been hurt by 1-3% declining volume.  MMM is down 30% from its peak.  It's amazing the multiples that the market is willing to pay when they have a up 3-4% volume year with a up 7-8% FCF/year versus a year when earnings falls due.  It's all part of running a business.  It's the same company making the same products.  Quarterly and yearly results really drives prices. 

 

I think they can get to a 700mm share count by year end next year while paying their 2% dividend. $2.8bn share buyback between now and year end 2020 divided by $70/share equals 40mm shares.  The return on capital (EBIT over net working capital + net PP&E) is about 35% by my estimate.  $13.8bn for the capital and EBIT is $4.8bn to $5.0bn.  I use $5.8 to $6.0bn of EBITDA less $1bn of maintenance cap ex.  The long term return on unlevered capital (Joel Greenblatt's method) is 35-36%.  As they shed some non-core assets over time, this metric will continue to rise. 

 

So we have a 35% return on capital business that should grow at GDP + 2% into the foreseeable future (not every year, but the norm, not a secular declining company) that has shown the ability to hold or raise prices by 1-3% even when volume declines in 2019 trading for 12.4x 2020 FCF.  MMM is trading for 19-20x.  All the specialty chemical names are in the dog house this year because volume is down 1-3% across the board.  There is also the optionality that they further spinoff or sell some of their division.  The nutritional and bio science division is rumored to be sold.

 

I think there are 2 reason why this $50bn company is cheap and available.  First, volume is down 1-3% this year.  Second, there is a lot of noise.  There is a lot of D&A that you have to parse out before you get to true FCF. 

 

Other thoughts welcome. 

[rogermunibond]

That's a good write up of the bull case.  The nutrition business could fetch $15-20B

[Gregmal]

Any speculation that this might be the "new and undisclosed" Ackman long? Personally I think it fits. Wish I had done DD on DD a little sooner. Nice bump the past few days.

 

[Spekulatius]

Cheap is relative. In the last, you could buy similar companies often for 9x EBITDA. DD has some real great business ( chip manufacturing consumables ). I bought some after the earning release, which was better then expected without thr stock reacting and sold today. Playing for small moves here, but it starts to add up.

 

One concern I have with Breen is that tends to scrimp on R&D somewhat. Same was the case with one Tyco spin-off I was involved with (Covidien).

[Gregmal]

https://finance.yahoo.com/news/dupont-movie-very-damaging-analyst-190338922.html

 

Well, just as pretty much everything IMO(on a non trading basis, and with the exception of like 2 names) has suddenly become "short term expensive", a holiday gift comes along!

 

I suppose I may look to begin accumulating a DD position starting 11/21!

[Spekulatius]

https://finance.yahoo.com/news/dupont-movie-very-damaging-analyst-190338922.html

 

Well, just as pretty much everything IMO(on a non trading basis, and with the exception of like 2 names) has suddenly become "short term expensive", a holiday gift comes along!

 

I suppose I may look to begin accumulating a DD position starting 11/21!

 

Also there are some lawsuits between the DuPont spinoffs, this affects primarily CC, then CTVA and DD. (If CC were unable to pay or unexpectedly win a lawsuit to keep DD and CTVA on the hook)

 

At least, I know now why CTVA and DD are down ~3.5% today. FWIW, I did buy back some DC shares I sold for $71 and change just a few days ago. The trading in these tin ties with virtually no relevant news makes little sense to me for quite some time, but it does seem easy to take advantage of this. Has DD and CTVA suddenly become a trading sardines for Robinhood Account holders? It almost seems that way.

[Guest Schwab711]

I started looking at DD and I'm not sure it's all that good of a deal even if the nutrition business sells for $25b. The remaining DD business will have EBITDA of ~$4.5b in 2020. Assuming the $25b is used to pay off all debt, FCF will likely be in the neighborhood of $2.5b/yr. It looks like the remaining DD business is a 10% ROIC business (I'm not if 35% above was tangible ROE or just nutrition). At that point, 10x EBITDA or 12x-14x FCF with a normal capital structure works out to approximately $45b EV (vs a current $39b EV, assuming a $25b sale of the nutrition business). Depending on the future capital structure, there might be some upside but at least in my initial look, I don't see a ton of value in DD.

[BG2008]

I started looking at DD and I'm not sure it's all that good of a deal even if the nutrition business sells for $25b. The remaining DD business will have EBITDA of ~$4.5b in 2020. Assuming the $25b is used to pay off all debt, FCF will likely be in the neighborhood of $2.5b/yr. It looks like the remaining DD business is a 10% ROIC business (I'm not if 35% above was tangible ROE or just nutrition). At that point, 10x EBITDA or 12x-14x FCF with a normal capital structure works out to approximately $45b EV (vs a current $39b EV, assuming a $25b sale of the nutrition business). Depending on the future capital structure, there might be some upside but at least in my initial look, I don't see a ton of value in DD.

 

Let's compare how you get to 10% ROIC.  Can you show your steps of your calculation?  Thanks. 

[Guest Schwab711]

I started looking at DD and I'm not sure it's all that good of a deal even if the nutrition business sells for $25b. The remaining DD business will have EBITDA of ~$4.5b in 2020. Assuming the $25b is used to pay off all debt, FCF will likely be in the neighborhood of $2.5b/yr. It looks like the remaining DD business is a 10% ROIC business (I'm not if 35% above was tangible ROE or just nutrition). At that point, 10x EBITDA or 12x-14x FCF with a normal capital structure works out to approximately $45b EV (vs a current $39b EV, assuming a $25b sale of the nutrition business). Depending on the future capital structure, there might be some upside but at least in my initial look, I don't see a ton of value in DD.

 

Let's compare how you get to 10% ROIC.  Can you show your steps of your calculation?  Thanks.

 

As of 9/30/2019:

BV = $41.3b

Less: Goodwill & Intangibles (Nutrition) = $15.4b

Plus: Cash (sale) = $25.0b

Debt = $18.2b

Less: Excess Cash = $25.0b

=> Total Invested Capital = $44.1b

Less: Goodwill (Remaining Segments) = $22.0b

=> Total Tangible Invested Capital = $22.1b

 

$2.5b FCF / $22.1b TTIC = 11.3%

 

It's still a nice business if it's potentially 11% tangible invested capital. The business could operate on an equity-only capital structure, which is certainly better than I expected before I looked at DD RemainCo. I'm not sure the best option is to buy back shares at a 10x EBITDA multiple though (I think I'd prefer a special dividend at current prices). DD seems like a fantastic LBO candidate, post-sale.

 

 

 

I did a back of the envelope estimating $2.5b FCF based on (less confident in the accuracy of the below but it should be close since I'm looking at a rough normalized figure):

$4.5B EBITDA

Less: $2.0b D/A

Less: $0.6b taxes

=>

$1.9b NI

Plus: $1.0b D/A less Capex

Less: $0.4b (once this tax shield runs-off)

=>

$2.5b normalized FCF (assumes $0 debt)

 

We are probably looking at $2.0b - $2.2b FCF with a normal capital structure but I don't know what DD's plans are.

[BG2008]

Schwab,

 

I use the EBIT/(Net Working Capital + net PP&E) method. 

 

Let's say we use your example and let's not both looking at the adjustments for the sale.  As of Q3, the GAAP book equity is $41.3bn for the whole company.  I think the FCF, pre nutrition sale, is $4bn.  But let's say it is $3.5bn to be conservative.  So that's our numerator. 

 

$41.3bn less total Goodwill and intangible of $46.6bn.  In essence, DD is already operating with negative tangible equity.  So the return on equity (if you are using a fully interest paying, cap ex, and taxed figure, then you should use a leveraged equity figure), is based off a negative figure.  If they sell nutrition, this equity figure should drop not increase, although it is already negative.  This is the advantage of these better businesses with good capital allocation skills.  They operate with negative tangible equity and the capital markets let them because they are such good businesses. 

 

The EBIT/(Net Working Capital + Net PP&E) is a unlevered and untaxed method.  Your method is a levered and fully taxed method.  A negative number with your method indicates a very high return on capital.   

 

Gut check - Ed Breen is too smart to let $44bn of capital sit on the balance and not do much with it.  I can't seem to follow your steps. 

[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?

[Guest Schwab711]

BG,

 

Your formula is going to result in higher prices for companies with more debt/M&A since your capital calculation excludes debt (and goodwill/intangibles). Further, going by book NWC, you are excluding $2b of debt that should actually be added to the capital calculation. Including nutrition, using (NWC + Fixed Assets + Debt) as the formula for capital, I get capital of ~$34.6b (I'd also point out that my previous calculation and this one does not include DTLs or the pension liability). I don't know where $4b FCF comes from (I'm guessing it's EBIT), but let's assume it's reasonable. Tangible pre-tax ROIC is 11.6%.

 

I have no idea what you are talking about with the below but it sounds like we are back to you are looking at tangible ROE or other formulas and I'm talking about invested capital. The reason I'm staying away from ROE is because tangible equity can be negative (as you point out).

A negative number with your method indicates a very high return on capital. 

 

The numbers are right. You can have a difference of opinion with whether to exclude intangibles or not (in my example), but they are just reported numbers and median estimates of 2020 EBITDA.

[sleepydragon]

BG,

 

Your formula is going to result in higher prices for companies with more debt/M&A since your capital calculation excludes debt (and goodwill/intangibles). Further, going by book NWC, you are excluding $2b of debt that should actually be added to the capital calculation. Including nutrition, using (NWC + Fixed Assets + Debt) as the formula for capital, I get capital of ~$34.6b (I'd also point out that my previous calculation and this one does not include DTLs or the pension liability). I don't know where $4b FCF comes from (I'm guessing it's EBIT), but let's assume it's reasonable. Tangible pre-tax ROIC is 11.6%.

 

I have no idea what you are talking about with the below but it sounds like we are back to you are looking at tangible ROE or other formulas and I'm talking about invested capital. The reason I'm staying away from ROE is because tangible equity can be negative (as you point out).

A negative number with your method indicates a very high return on capital. 

 

The numbers are right. You can have a difference of opinion with whether to exclude intangibles or not (in my example), but they are just reported numbers and median estimates of 2020 EBITDA.

 

I agree. Companies pretty much can have any roe they want by issuing more debt.

ROIC is the one the look at to judge if they have pricing power and competitive barriers.

[lnofeisone]

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.

[KJP]

BG,

 

Your formula is going to result in higher prices for companies with more debt/M&A since your capital calculation excludes debt (and goodwill/intangibles). Further, going by book NWC, you are excluding $2b of debt that should actually be added to the capital calculation. Including nutrition, using (NWC + Fixed Assets + Debt) as the formula for capital, I get capital of ~$34.6b (I'd also point out that my previous calculation and this one does not include DTLs or the pension liability). I don't know where $4b FCF comes from (I'm guessing it's EBIT), but let's assume it's reasonable. Tangible pre-tax ROIC is 11.6%.

 

I have no idea what you are talking about with the below but it sounds like we are back to you are looking at tangible ROE or other formulas and I'm talking about invested capital. The reason I'm staying away from ROE is because tangible equity can be negative (as you point out).

A negative number with your method indicates a very high return on capital. 

 

The numbers are right. You can have a difference of opinion with whether to exclude intangibles or not (in my example), but they are just reported numbers and median estimates of 2020 EBITDA.

 

I agree. Companies pretty much can have any roe they want by issuing more debt.

ROIC is the one the look at to judge if they have pricing power and competitive barriers.

 

Return on tangible invested capital would provide evidence of pricing power/competitive barriers.  But adding in artifacts from purchasing accounting (goodwill, finite lived intangibles) will muddy the waters and understate the true economics of the existing business going forward.

 

An example will illustrate the point.  Scenario 1:  Company A buys Company B for $1 billion.  Scenario 2:  Company A buys the same Company B for $5 billion.  Scenario 2 will result in Company A recording $4 billion more in purchase accounting intangibles, which obviously will reduce a ROIC calculation that includes purchase accounting intangibles in the denominator.  But the difference is just an accounting entry that has no bearing on the quality of Company B's business -- Company B didn't suddenly become a worse business (less pricing power/fewer competitive advantages) simply because Company A paid more for it.

 

Long story short, including intangibles arising from purchase accounting in invested capital is useful for evaluating a management's M&A track record.  But I don't think it's useful for evaluating the true economics of the business or for performing a calculation that would provide evidence of barriers to entry/competitive advantage (or lack thereof).

 

Similarly, a business's underlying pre-tax ROIC should be independent of how it's financed (the tax shield from debt would affect post-tax numbers).  That is why I use the same method as BG for calculating invested capital.  You can then address the benefits (or demerits) of how the business is financed separately.

[Spekulatius]

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.

[Spekulatius]

I estimate DD tangible invested capital (using the passive side of the balance sheet) at around $15B: $10B in PPE, ~$4B in Investors and $1B in net working capital (accounts receivable minus accounts payable). So with $4B in FCF, I get  a ~27% ROTC. It’s probably a bit lower than that, because I think there are some unconsolidated assets plus a bit of cash needed to run the business.

[Guest Schwab711]

I suppose the last thing worth pointing out is that $4b is not actual FCF, it's projected EBIT. DD has ~$700m in interest and $850m in taxes. FCF is something less than $2.5b before the sale of nutrition. My $2.5b estimate is based on generous 2020 estimates. $2b / $15b = 13.3% tangible ROIC.

 

Further, there's $2b in long-term investments/assets not included in capital calculation that is contributing to EBIT. As mentioned, DD probably doesn't have excess cash or at least some is needed.

 

Considering DD has generally grown through M&A and likely will again in the future, I'm not sure it makes sense to look at tangible returns. Simple sanity check says DD is unlikely to have returns well-above WACC considering they operate in competitive markets.

 

It's not that any of this is overly important other than I don't think DD's remaining business is likely to garner a high valuation multiple.

[Gregmal]

So, summarizing, at least how I interpret the last maybe half dozen posts... depending upon the preference for inputs, DD is sandwiched within a range of being considered an average but nothing special business trading reasonably cheap, to a modestly undervalued, great business with some financial levers to pull....

 

As this summary then gets thrown onto the dart board of "everything else", I think that on a relative basis it's not a bad place to be especially given where a lot of the rest of the market is. Which is why I have a little bit of cash there. But would be waiting for lower prices to put on something of larger size.

[Spekulatius]

I suppose the last thing worth pointing out is that $4b is not actual FCF, it's projected EBIT. DD has ~$700m in interest and $850m in taxes. FCF is something less than $2.5b before the sale of nutrition. My $2.5b estimate is based on generous 2020 estimates. $2b / $15b = 13.3% tangible ROIC.

 

Further, there's $2b in long-term investments/assets not included in capital calculation that is contributing to EBIT. As mentioned, DD probably doesn't have excess cash or at least some is needed.

 

Considering DD has generally grown through M&A and likely will again in the future, I'm not sure it makes sense to look at tangible returns. Simple sanity check says DD is unlikely to have returns well-above WACC considering they operate in competitive markets.

 

It's not that any of this is overly important other than I don't think DD's remaining business is likely to garner a high valuation multiple.

 

My understanding of ROIC that one looks either at the left hand side (asset side) or the right hand side (equity & liability side)of the balance, sheet,, it should not muddle them together. I picked the right hand side, so one has to stick with that. I do agree agree that the $4B in FCF is probably too high.  My former notes  derived at ~$3.4B, which yields a ~23% as a Return on tangible equity.

 

Yes DuPont has traditionally growth via acquisitions and they have done a poor job at that. The current DD thesis really evolves around this company  doing better than in the past, otherwise there is no point in owning it. Most of the value will be created with organic growth (at least that’s my thesis). Currently, organic growth isn’t there, hence the stock isn’t moving, however, if we get a couple of percent volume growth and pricing with inflation, then the relatively high ROIC start to matter. Add in some value add from Breen doing some magic via dispositions, mergers and buybacks and we are looking at double digit returns for the stock.

 

From my POV, DD isn’t a great business, but it is a good business that should be around for a long time. In that sense, it would a great business for BRK to own, imo.

[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.

 

Thank you very much for this explanation!

[BG2008]

On Dec. 9, Bloomberg reported rumors that International Flavors & Fragrances is exploring a combination with DuPont's nutrition business. With this news being only speculation at this point, our IFF and DuPont valuation models are unchanged. We maintain our $131 per share fair value estimate and wide-moat rating for IFF as well as our $93 per share fair value estimate and narrow-moat rating for DuPont.

Reportedly, both IFF and Kerry Group have expressed interest in the DuPont nutrition assets. The overall size of the business in play and the high quality of the underlying assets (exhibiting clear traces of switching costs and intangible assets), combined with the potential for a bidding war, will likely set a lofty price tag.

 

The rumored transaction would establish a new company housing both the DuPont nutrition assets as well as the bidder's assets that would be spun off to existing investors in a tax-efficient transaction. It remains to be seen which portions of DuPont's Nutrition & Biosciences segment would ultimately be involved in the deal. However, given the trading multiples of its competitors, we surmise that the segment as a whole would command a multiple safely above 20 times EBITDA. A range of 20-25 times trailing EBITDA would suggest a segment valuation range of $32 billion-$40 billion. However, we estimate that the pricing range for the nutrition business alone would be roughly two thirds of this total.

 

For IFF, DuPont's nutrition business has overlap with existing business lines but also offers some new adjacencies. However, IFF shares traded nearly 6% lower on the news. With IFF still digesting its acquisition of Frutarom, consummated in October 2018, the news of a potentially much larger deal with DuPont comes as a surprise. The investor caution reflected by today's downward share price movement is understandable, as the ongoing integration of Frutarom has been far from seamless.

[Gregmal]

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

[BG2008]

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?