NEW YORK — Koch Industries seems to be a suitable parent to adopt DuPont Textiles & Interiors.
DTI, currently a unit of chemical giant DuPont, and Koch Industries confirmed Monday that they were in talks about the sale of the $6.3 billion business. This confirms previous reports in WWD that it intended to sell or spin off DTI by the end of 2003 and that the two firms were in discussions.
Competitors called the move logical, if for no other reason than there are few other companies with the wherewithal and interest to buy the hefty DTI fiber operation, which produces spandex, nylon and polyester.
“It makes sense,” said James [Rusty] Ford, vice president of Hyosung (America) Inc., the Charlotte, N.C.-based arm of the South Korean synthetic-fiber maker, in a Tuesday interview. “Probably the biggest reason that it makes sense is there is no one else that can swallow the giant pill.”
Privately owned, Wichita, Kan.-based chemicals giant Koch (which is pronounced the same as “Coke”) is said to have revenues of around $40 billion — a mark that even outstrips Wilmington, Del.-based DuPont, which last year racked up $24 billion in sales.
Bill Ghitis, president of global apparel at DTI, said Monday, “We are at a stage where Koch will start a due diligence process, then there will be a negotiations process that will either take us to an acquisition or not.”
Koch’s research will include visiting some of DTI’s 60 factories around the world to come up with an offer. The negotiations will not likely begin until October, according to DTI, though an outcome is expected by the end of the year. Neither firm would comment on the value of a potential deal, but Koch is said to be looking at all of DTI’s assets, in branded and generic polyester, nylon and spandex, including the Lycra brand.
Koch has considerable holdings in oil and gas, chemicals, minerals and securities, and is controlled by brothers Charles and David Koch, whose father, Fred, started the firm in 1940.
On the fibers front, Koch owns Houston-based polyester manufacturer KoSa. Since Koch is primarily an oil company, DTI’s strength in nylon — which, like polyester, uses petrochemicals as a key raw material — would round out the company’s strength in oil-based fibers.“Combining the capabilities of KoSa with DTI’s strengths, brands and leadership in the nylon and spandex side, you end up with a leading diversified company in resins and fibers globally,” a Koch spokeswoman said Monday. “DTI has a lot of superb capabilities and their brands are among the world’s most known. We see expansion and investment opportunities.”
In a cyclical business like the fibers market, where oil prices fluctuate, the spokeswoman said being a private company is an advantage.
“We have a long-term focus,” said the spokeswoman. “We think we can be very responsive to market developments and take actions to create superior value to customers. Some of those [actions] are unique because we’re privately held.”
If the deal with Koch falls apart, however, an initial public offering would be the next logical step, according to Ghitis, and would likely take place in early 2004.
DuPont executives have been adamant since revealing their plans to part with the DTI business that an IPO is an option. Yet the market for textile stocks has been bleak for the past several years — only five U.S. textile companies with apparel operations retain their listing on major U.S. exchanges, and Tuesday all their share prices closed well below the $11 mark.
For the six months ended June 30, DTI reported aftertax operating income of $12 million, compared with a $30 million operating loss a year earlier. Sales were $3.5 billion, up 12 percent.
With the U.S. textile industry facing the end of quotas on textiles and apparel among World Trade Organization members in 2005, observers said it’s unlikely the climate for a textile IPO would be rosy.
“Today, you don’t see very many people investing in the textile companies,” said Hyosung’s Ford. “The outlook is completely foggy.”
“The IPO didn’t seem to make a lot of sense. Who would want to buy stock in a textile company?” consultant Nick Hahn, of Hahn International, asked rhetorically. “Other than spandex, I don’t know where there’s a lot of money to be made.”
Ghitis said DuPont’s corporate management is overseeing the sale process, leaving DTI executives to focus on their business.“What’s important is that we continue to run our business intently by bringing market innovations and we are very active in expanding our manufacturing capabilities,” said Ghitis. “Whether in transition or not, we’re here to service our customers and make them successful.”