NEW YORK — One barrier may have been lifted last week in the reported negotiations between DuPont and Koch Industries about the sale of DuPont’s fibers business to the Wichita, Kan.-based petroleum giant.
This story first appeared in the April 1, 2003 issue of WWD. Subscribe Today.
As reported, the arbiter handling the dispute between DuPont and Unifi Inc. over a joint manufacturing agreement found no evidence of a “substantial breach” of the agreement and plans to conclude arbitration by the end of the month.
That dispute, in which DuPont sought $85 million, was described by market observers as a minor glitch in DuPont’s quest to unload its $6.3 billion DuPont Textiles & Interiors division. In February 2002, the Wilmington, Del.-based industrial giant said that it planned to spin off that unit through an initial public offering, if possible.
However, sources said that since the soft stock market has left investors with little appetite for initial public offerings — and since U.S. textile stocks in general have not been seen as an attractive investment option for several years — selling the unit to a private buyer appears the best option. The problem is that DTI’s massive size — it’s by far the largest textile company in the U.S. and perhaps in the world — means that there are few companies with pockets deep enough to make a bid.
As reported, Koch has reportedly offered more than $4.5 billion for the DTI unit. The privately owned company does not report its financial results, but is said to have revenues in excess of $40 billion a year. On a revenue basis, that would make it bigger than DuPont, which last year reported $26.7 billion in sales.
A DuPont spokesman on Monday declined to confirm the negotiations, as did a Koch spokeswoman. DTI officials also declined to comment.
“This is probably the best offer that DuPont is going to get,” said James “Rusty” Ford, vice president of the Charlotte, N.C.-based Hyosung (America) Inc., the U.S. unit of the South Korean fiber giant, a DuPont competitor that sells Creora spandex.
He said DTI would be a logical fit in Koch’s portfolio.
“They’re looking for downlinks for their chemicals and resins,” he said of Koch. “This could be something where they could control pricing a little bit better and reap a bigger reward.”
Koch already owns one fiber business, KoSa, which includes the former polyester business of Celanese, which was known as Trevira. KoSa started as a joint venture of Koch and Imasab, the Mexican conglomerate run by Isaac Saba. But in 2001, Koch bought out its partner and now retains sole ownership of the business.
Basil “Sonny” Walker, president and chief operating officer of the Greensboro, N.C.-based U.S. arm of nylon maker Nylstar Inc., said the DTI-Koch connection “does make sense.”
“Koch is in the basic raw materials business and DTI could be a route to market,” said Walker, a former DuPont polyester executive. “It’s going to take someone of that size to be able to buy something like DTI.”
He said that in the absence of such a megadeal, DuPont’s only other likely option for DTI would have been to have a piecemeal IPO, selling off the business in 20 percent chunks over a period of years.
DuPont executives have said they want to separate DTI, which already operates as a freestanding unit, by the end of this year. DTI includes DuPont’s Lycra spandex, generic spandex, nylon and branded polyester specialities business.
While DuPont’s generic polyester filament business, which was the subject of the dispute with Unifi, is not part of the DTI unit, sources said the dispute with Unifi could still have been seen by Koch as an impediment.
Observers said they expected that if the Koch-DTI deal happens, Koch would look to sell the Lycra spandex business. Spandex uses different raw materials than polyester and nylon, which makes it less of a strong fit for a petroleum firm. As reported, sources said that Steve McCracken, president of DTI and a DuPont group vice president, is believed to be comprising an investor group to try to bid for the Lycra business, which he headed before being promoted to head DTI.
Still, observers said it’s not clear what might happen to DTI if this deal falls through. For a time early this year, it looked like investor interest in textiles might be picking up following Warren Buffett’s bid for bankrupt Burlington Industries, a move that some said might spark new investment in the sector. But that light of hope went out when Buffett dropped his bid.
“If you look at the textile industry here in the U.S.,” said Nylstar’s Walker, “there’s no one large enough to step up and buy DuPont.”