Divestiture Finance DCF

• Why did DuPont originally buy Conoco? Does their rationale make sense?
• Do you agree that Conoco was dragging down DuPont’s value? Provide a multiples-based valuation analysis to support your view.
• Why do you think DuPont management structured the second-stage divestiture of Conoco as a split-off rather than as a conventional spin-off?
• The Limited’s split-off of its Abercrombie & Fitch unit (described on page 6 of the case) was structured as a “modified Dutch auction”. Do you think this would have been a superior way to structure DuPont’s split-off of Conoco?

Please note:

• I have provided a supplemental spreadsheet with some additional segment-level data for DuPont. This data does NOT include Conoco. DuPont’s results in Exhibit 2 of the case also exclude Conoco for all periods.
• The closing prices of DuPont and Conoco Class A common stock on July 8, 1999 were $68.625 and $27.375, respectively.
• The debt to be issued by Conoco to pay off the $7.5 billion promissory note due DuPont following the IPO (discussed on page 6 of the case) is NOT additional debt on top of the $4.9 billion “assumed” by Conoco at the time of the IPO (also discussed on page 6). The $4.9 billion INCLUDES the promissory note liability.