Analysts were not surprised by Monday’s announcement that DuPontintends to sell its stake in Conoco. In fact, some wondered whattook the company so long. “That’s something they’ve [talked about]for a long time and they’re finally acting on that,” said CarolFreedenthal of Houston-based Jofree Corp. “I guess they’ve just gotbetter places they can put their money than the oil and gasbusiness.”
Edward Jones chemical analyst Bill Fiala said the move seemedimminent about a month ago after restructuring within DuPont didnot include Conoco. “I think the writing was on the wall at thatpoint,” he said. “I think it’s good for Conoco and good for DuPont.I think if Conoco’s ever going to thrive, it needs to be a littlemore independent and a little more agile.”
DuPont said it will offer up to 20% of wholly owned Conoco’scommon stock to the public in an initial public offering (IPO). TheIPO, which will be one of the largest in history, is the first stepin DuPont’s planned total divestiture of Conoco.
“Conoco has been a strong contributor to DuPont’s earnings andcash flow for nearly 17 years,” said DuPont CEO Charles O. HollidayJr. “However, we believe that value and growth can be enhanced forDuPont’s materials and life sciences businesses and for Conoco byseparating the two operations. We are building on our 10-yearstrategic direction, and intensifying our focus on life sciences,making it imperative that we rapidly accelerate our investment tocapture market opportunity and increase shareholder value.”
Holliday said DuPont intends to divest its remaining interest inConoco as soon as practical in the form of further stock offeringsor a spin-off to shareholders.
“An IPO gives us maximum flexibility. DuPont will have access tocash from the IPO and at the same time will benefit from Conoco’songoing financial contribution as we consider the options fordivestiture,” Holliday said. “Given this, as well as Conoco’s plansfor the future, the time is right for Conoco to be given theopportunity to operate as an independent entity.”
Edward Jones energy analyst Kate Warne agreed. She noted oilprices have rebounded somewhat recently, and, even so, “most largeoil companies, which Conoco will trade like, are affected by oilprices, but not as much as drillers or the oil service companies.”
The strategy of at least starting the divestiture with an IPOmakes sense to Freedenthal. “They’re not throwing it into the waterto sink or swim, and No. 2, they’re building it up slowly enoughthat they’re obviously going to get some more good out of [Conoco].They don’t want to do it [all at once] because somebody could makea move for them where they would have no defense. Where this waythey’ve still got a defensive posture, still being part of the bigDuPont. With only 20% ownership, nobody’s going to walk in to takethem over.”
DuPont said it expects Conoco to file a registration statementwith the Securities and Exchange Commission later this year andplans to complete the IPO by year end. DuPont, which will hold morethan 80% of Conoco after the IPO, will retain majority membershipon the board.
Conoco, with revenues of about $22 billion, is active in 40countries and involved in exploration, production, transportation,marketing, refining and power. Conoco ranks 11th among U.S.companies in gas production.
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