Al Root

DuPont investors were excited about a three-way breakup. Now they are excited about a two-way separation and the potential end of " deal limbo."

Wednesday, DuPont announced it would spin off its electronic business, hoping to be done by this November.

Shares of the materials-technology conglomerate were up 1.7% in premarket trading at $77.50, while S&P 500 futures were flat, and Dow Jones Industrial Average futures were down about 0.3%.

Investors reacted positively, but the new plan is a little different from the old plan. In May, DuPont announced a plan to break apart into three companies: One materials giant with brands such as Tyvek and Kevlar; one serving the electronics industry; and a third serving water markets.

Now the water business will stay. "We remain confident in the opportunity to create significant shareholder value through the separation of the electronics business," said CEO Ed Breen in a news release. "Achieving an independent electronics company as soon as possible is the right decision for our shareholders."

"As soon as possible" might be the most important phrase. DuPont stock was a little below $79 before the original May breakup announcement. Shares gained about 3% in the following couple of days, but DuPont stock closed at $76.24 on Tuesday, down roughly 3% from preannouncement levels.

One thing that can happen to stocks involved in a spinoff or breakup is deal limbo, where investors wait until the event is closer. The three-way separation might not have wrapped up until the middle of 2026.

It's difficult to say if deal limbo weighed on DuPont shares, but there is some evidence that investors have been thinking about more than just business performance.

DuPont is expected to earn about $3.90 a share in 2024, according to FactSet. That estimate was closer to $3.60 at the time of the original breakup announcement. Similarly, estimates for 2025 earnings per share have gone to about $4.40 from $4.30 over the same span. The stock got cheaper while investors waited for the breakup.

Shares are getting a bounce from the updated plan and the stock's current valuation doesn't hurt either. Shares trade for about 17 times estimated 2025 earnings. A year ago they traded for closer to 18.5 times. The S&P 500 currently trades for almost 22 times 2025 estimated earnings.

Write to Al Root at allen.root@dowjones.com

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January 16, 2025 09:28 ET (14:28 GMT)

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