DuPont Stops Sticking To Teflon, Sets July 1 For Debt-Laden, Litigation-Challenged Chemours Spin

DuPont(DD) has not been lacking in drama, with a famously noisy battle with activist Nelson Peltz.  The company is now in the final stretch of its spinoff of Chemours, with a date and ratio set.  The stock will be distributed on July 1 to shareholders as of June 23. Shareholders will receive one share of Chemours for every 5 shares of DuPont held. In homage to DuPont’s DD ticker, Chemours will trade under CC. When-issued trading will begin on June 19.

The Chemours Company is a global leader in titanium technologies, fluoroproducts and chemical solutions, providing its customers in a wide range of industries with market-defining products, application expertise and chemistry-based innovations. Chemours ingredients are found in plastics and coatings, refrigeration and air conditioning, mining and oil refining operations and general industrial manufacturing. Our flagship products include prominent brands such as Teflon®, Ti-Pure®, Krytox®, Viton®, Opteon® and Nafion®. Chemours has approximately 9,000 employees across 37 manufacturing sites serving more than 5,000 customers in North America, Latin America, Asia-Pacific and Europe. Chemours is headquartered in Wilmington, Del.

Not mentioned is that the new company will have a heavy debt load, having distributed nearly $4 billion in cash to its parent. This has caused concern to some who are involved in ongoing litigation with DuPont over adverse health impacts from a West Viriginia chemical plant.  Peltz and Trian had expressed similar concerns

Trian Fund Management, the activist investor trying to win four DuPont board seats at the annual investor meeting on Wednesday, said DuPont is loading too much debt onto Chemours.

“Trian’s suggestion was always to keep Chemours investment grade, while management has chosen to put the company’s credit rating into ‘junk’ territory, utilizing approximately twice the balance sheet leverage that Trian proposed,” the New York-based fund said in an April presentation to DuPont investors.

Investors should be cautious given this debt load and potential liability. Could this be a repeat of Tronox, another spinoff with similar liability issues that eventually ended in bankruptcy? As we have seen repeatedly in asbestos litigation, these issues can persist and quickly bring down companies long after the end of production. With a massive debt load, Chemours has a limited capacity to recover from any adverse events.

Disclosure: The author holds no position in any stock mentioned