DuPont CEO's sudden exit sparks breakup debate

DES MOINES — The abrupt departure of the top executive at chemical and seed giant DuPont has reignited the debate over whether the conglomerate should be broken apart, a move that could throw into question the future of one of Iowa's largest employers, DuPont Pioneer.

DuPont, which has been in an ongoing battle with activist investor Nelson Peltz, said this week that its chief executive Ellen Kullman will retire Oct. 16 after nearly three decades with the Delaware-based company.

DuPont CEO retires amid pressure from activist

Edward Breen, a member of DuPont's board of directors who once oversaw the breakup of diversified manufacturer Tyco International, will take over as interim chairman and CEO while the board searches for a full-time replacement.

Shares in the company, founded in 1802 to make gunpowder, surged 7.7% to $55.21 Tuesday following news of Kullman's departure.

“The buzz is definitely all about (a possible split)," Matt Arnold, a St. Louis-based analyst at Edward D. Jones & Co., said Tuesday. “That’s why the stock is up so much today. There are people that obviously see value in it and they are buying the shares because they see a breakup as being a catalyst.”

DuPont officials wouldn't comment.

The push from Peltz

The company so far has successfully rebuffed attacks by Peltz, co-founder of Trian Fund Management, to push for changes he says would increase DuPont's lagging stock price. One possibility could include splitting the company into pieces, with one unit housing the agriculture operations of DuPont Pioneer, based in Johnston, Iowa.

Agriculture is DuPont's largest business, accounting for about a third of its $35 billion in sales last year.

Kullman narrowly defeated Peltz's efforts to win board seats at DuPont in May, but the New York investor has retained his stake in the company and warned he could fight for further changes if things don't improve.

A spokeswoman at Trian declined to comment on Kullman's departure, but the firm's chief investment officer, Ed Garden, said in an interview with CNBC Monday that "the DuPont story is far from over."

Arnold said one of the first jobs of DuPont's new CEO will be to determine whether a split makes sense for the company and defend that decision to shareholders.

Chad Hart, an agricultural economist at Iowa State University, said DuPont leaders will have to assess whether “pieces are worth more than the sum total.”

Pioneer, purchased by DuPont in 1999, has been an important Iowa company since agriculture pioneer Henry A. Wallace founded it in 1926. It employs 3,400 Iowans, many of whom live in the Des Moines metro area.

DuPont Pioneer grew as the state struggled to escape the depths of the national recession that began in 2007.

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Farm economy impact

While a breakup is far from certain, it comes amid a backdrop of a slumping agricultural economy that has squeezed farm income and forced producers to cut back on seed, fertilizer, equipment and other inputs for their operations.

Farmers are expected to see their income drop in 2015 to $58.3 billion, a drop from $91.1 billion a year ago, according to the U.S. Agriculture Department.

The downturn has sharply lowered the values of Pioneer, Monsanto, Deere and other agricultural companies, a factor that could deter investors from wanting to see Pioneer severed from its cash-rich parent DuPont, given the current climate.

“Let’s face it, the timing isn’t perfect (for a split), in terms of the ag economy being under duress, and as a result ag-related aren’t exactly carrying the valuation they once did,” Arnold said. “At the same time, it can come back and it can still work. I don’t think it’s a deal-breaker that ag stocks aren’t as highly valued as they once were.”

Companies with strong links to farming are assessing how best to survive the ag economy’s downturn, said ISU's Hart.

Large farm equipment manufacturers Deere and Kinze Manufacturing have laid off workers. Deere has cut about 1,500 workers since last year; Kinze trimmed about 200.

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Agriculture consolidation

Analysts have long viewed agriculture as ripe for consolidation, a prospect that has intensified in the face of depressed commodity prices and lower spending.

Monsanto, the world’s largest seed company and maker of the popular herbicide Roundup, dropped its pursuit of rival Syngenta in a $46 billion deal in August that would have upended the seed and chemical industry.

"We can see the seed industry is in a good degree of flux, due to the general weakness in the farm economy," Hart said. "I think companies are trying to assess where they’re at now, what’s the best structure they can be in to gain market share.”

Separating Pioneer from DuPont could leave the unit more active in either expanding its business by giving it more freedom to purchase other companies, or leaving it more vulnerable to being acquired itself, analysts have said.

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Interest in Pioneer

Many companies could be interested in buying DuPont’s Pioneer seed business, Hart said. Monsanto first comes to mind, given its failed attempts to buy Syngenta.

Hart said food and processing giants like Cargill or Archer Daniels Midland also could be interested in entering the seed business through a Pioneer buyout.

“For a large ag corporation, it may be a great way to make a big splash in the seed business,” he said. “With Pioneer, they would get a company that’s well established and a good brand name within the industry.”

Seed industry merger could pressure DuPont Pioneer

Don Roose, president of U.S. Commodities in West Des Moines, said farmers have expressed concern that since DuPont purchased the rest of Pioneer in 1999, the conglomerate focused too much attention on cutting costs and watching the bottom line of the agricultural unit.

At the same time, DuPont has increased the prices it charges farmers for seeds and other products, but producers contend the technological advancements have not been enough to justify the higher price tag.

“I hear this over and over again, when they combined it seemed like prices started to race up,” Roose said. “So if Pioneer splits off maybe we have a chance for them to focus on their core business and actually be more concentrated (just on the seed business). I think the way the producer is looking at it is, it really didn’t benefit them a whole lot when they combined.”

Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, said he's not convinced that Pioneer has been a good fit inside DuPont. He thinks spinning off Pioneer would strengthen the company and potentially boost operations in Iowa.

But he doubts DuPont would be eager to give up Pioneer revenue, even with a farm slowdown.

"You can go a year or two without buying a tractor," he said. "You have to use seed every year."