DuPont Announces Plans to Divest its Conoco Energy Operations
In a move that rocks both the petroleum and chemical industries, DuPont announced on May 11 that it plans to offer up to 20% of the common stock of its wholly owned energy subsidiary, Conoco Inc., to the public in an initial public offering (IPO). The IPO, which will be one of the largest in history, is the first step in DuPont's planned divestiture of its entire investment in Conoco.
The implication for the chemical industry is that the gradual turning away from integrated manufacturing, from natural resources to specialty chemicals, is accelerating. At the same time, DuPont is joining a number of other chemical majors, including Monsanto and Hoescht, that have moved more deeply into life sciences and medical products. For the petroleum industry, the implication is the return of a major player to a petroleum-only play. The logic of integrated production, from oil in the ground to petrochemicals, is being tested.
"Conoco has been a strong contributor to DuPont's earnings and cash flow for nearly 17 years," said DuPont president and CEO Charles Holliday. "However, 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 ten-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."
Holliday said DuPont intends to divest its remaining interest in Conoco as soon as practical. The form of the divestiture 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.
"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," Holliday said. "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."
Conoco president and CEO Archie 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," he said.
"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 and enjoy experienced management, an extraordinary workforce, and an impressive solid set of core values that guide all of our activities."
DuPont said it expects Conoco to file a Registration Statement with the Securities and Exchange Commission later this year and plans to complete the IPO by year end.
Dunham, 59, will serve as president and CEO of Conoco Inc. DuPont, which will hold more than 80 percent of Conoco after the initial public stock offering, will retain majority membership on the board. Edgar Woolard, retired chairman of DuPont, will be the non-executive chairman of Conoco Inc. After DuPont reduces its ownership to less than 50%, it is expected that Dunham will become chairman.
The company operates in about 70 countries and has 98,000 employees. Revenues in 1997 were more than $45 billion. Conoco currently has revenues of about $22 billion. Active in 40 countries, Conoco is a fully integrated energy company involved in exploration, production, transportation, marketing, refining and power. The company ranks ninth in the worldwide production of petroleum liquids by all U.S.-based companies, eleventh in the production of natural gas, and eighth in refining runs.
Edited by Nick Basta