E.I. du Pont de Nemours and Co.: The Conoco Split-off (A)

E.I. du Pont de Nemours and Co.: The Conoco Split-off (A): "

After taking 30% of its Conoco oil and gas subsidiary public in the largest domestic initial public offering (IPO) in U.S. history, management of E.I. du Pont de Nemours and Co. (DuPont) is considering divesting its remaining interest in Conoco. This goal is to be accomplished through a relatively uncommon transaction called a corporate "split-off," under which DuPont's shareholders will be given the option to exchange their shares in DuPont for shares in Conoco (but, in contrast to a more conventional "spin-off," they are not obligated to exchange their shares). Management's objective in restructuring is to move DuPont away from its traditional energy and chemical business toward the life sciences (agriculture, biotechnology, and pharmaceuticals).

Learning Objective: To discuss the economics of IPOs and the rationales for corporate restructuring. To assess the potential value enhancement for DuPont's shareholders of divesting of the company's slow-growth oil and chemical business. Also, contrast alternative techniques for breaking up a conglomerate, including spin-offs, asset sales, carve-outs, tracking stocks, and split-offs. To debate the merits of the company's proposed risky strategic shift into a new "hot" industry whose prospects are highly uncertain.

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