Business Case Studies & Business Publications

DuPont Corporation: Sale of Performance ...

Chaplinsky, Susan,...

Case

DuPont Corporation: Sale of Performance Coatings

Chaplinsky, Susan; Marston, Felicia C.; Merker, Brett

F-1709 | Published February 7, 2014 | 20 pages Case

Collection: Darden School of Business

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In January 2012, Ellen Kullman, CEO and chairman of DuPont, must decide whether to retain or sell the company’s Performance Coatings (DPC) division. This is an introductory case on valuing a leveraged buyout. The case focuses on a publicly listed corporation’s decision to divest a large division and asks students to compare the division’s value if it remains under DuPont’s control or is sold to an outside party. The transaction size of approximately $4 billion is too large for potential strategic buyers in the industry, making private equity (PE) firms the most likely bidders. The case provides a base-case adjusted present value (APV) model of DPC as a stand-alone company and gives students specific assignments to adjust it to reflect the division’s potential value under PE ownership (e.g., EBITDA growth, multiple arbitrage, and increased leverage). The case is designed to illustrate and discuss the differences between a public company’s valuation based on unlevered free cash flows and a PE sponsor’s valuation based on residual (levered) cash flows. This case has been successfully taught in a second-year elective course covering entrepreneurial finance and private equity and in an advanced undergraduate course on corporate finance. It is appropriate for use in classes on private equity, advanced corporate finance, or deal valuation.

• To familiarize students with the purpose and deal characteristics of leveraged buyouts • To help students understand the sources of value creation in LBOs • To help students develop skills in valuing potential LBO targets • To examine the relationship among the value paid for an LBO target, financing requirements, and the returns to buyout investors • To familiarize students with trends in the buyout market and how these have more broadly affected the corporate M&A market • To discuss how shareholder value can be created through divestitures and the opportunity to sell to private equity investors