DuPont Might Be Nearing Sale of Conoco Unit
U.S. chemicals giant DuPont Co. on Sunday declined to comment on a British newspaper report that it was negotiating the sale of its Conoco energy unit to Elf Aquitaine, France’s largest oil company, for $24 billion.
London’s Financial Mail quoted unidentified sources saying that Elf was one of several companies to look at Conoco, the sixth-largest U.S. oil company. The newspaper’s source said Elf emerged the favorite, and the two companies were in negotiations that could lead to a sale, with DuPont buying Elf’s pharmaceutical and perfume businesses. The paper didn’t name other Conoco bidders.
DuPont Chief Executive Charles “Chad” Holliday declined to comment on whether DuPont, the largest U.S. chemical company, was negotiating with Elf. Conoco Chief Executive Archie Dunham also wouldn’t address the report, saying U.S. securities rules prevent him from making any direct comment.
Elf spokeswoman Catherine Durand described the article as “market rumor which Elf won’t comment on” that was “doubtless inspired by BP’s purchase of Amoco.”
Last week, British Petroleum agreed to buy Amoco Corp. in a transaction now valued at about $55 billion in stock and assumed debt, the biggest oil industry acquisition ever.
The merger announcement immediately fueled analysts’ speculation that more industry consolidation is in the offing.
DuPont has already signaled that it plans to divest itself of Conoco and in May said it planned to offer 20% of Conoco shares in an initial public offering. DuPont said it would invest the proceeds in its pharmaceutical, agricultural and life-sciences businesses. Dunham said that course hasn’t changed.
“Conoco and DuPont are proceeding down an IPO route,” he said.
Conoco filed last month with the Securities and Exchange Commission to sell the shares and is likely to offer them in an IPO before the end of this year.
Elf’s pharmaceuticals business could give it an advantage over other oil companies seeking to buy Conoco. Elf holds a majority stake in Sanofi, one of France’s leading drug manufacturers.
Wilmington, Del.-based DuPont said earlier this year that it would reorganize the company to focus on pharmaceutical, agricultural and biotechnology businesses, which it expects to grow faster than Conoco’s oil exploration and refining operations.
By swapping Elf’s drug holdings for at least part of Conoco, DuPont might both expand its pharmaceuticals business and avoid paying capital-gains tax on at least part of the transaction, said Paul Leming, a chemical analyst at HSBC Securities Inc.
Leming estimated DuPont would have to pay about $4 billion to $5 billion in capital-gains taxes if it sold Conoco outright.
The Financial Mail said DuPont and Elf were considering an oil-for-pharmaceuticals swap. In addition to drug holdings, Elf might also sell its Oscar de la Renta, Fendi and other perfume and beauty products businesses to DuPont.
Last month, DuPont paid $2.6 billion to purchase Merck & Co.’s half of their pharmaceuticals joint venture.
In May, Elf said first-quarter sales fell 12% to $9.95 billion, reflecting a 33% drop in the price of oil. DuPont in July said Conoco second-quarter sales fell 3% to $4.7 billion, while earnings fell 27% to $180 million because of lower oil prices.
An acquisition would also give Elf gas stations and refineries in the U.S. Higher profit margins from gasoline sales in both the U.S. and Europe eased the effect of lower oil prices on second-quarter earnings for the biggest world oil companies.
Elf has 5,300 gas stations, almost all in Europe., where the company got 95% of the profit it earned from fuel and other refined-product sales. Conoco, which has about 7,000 service stations, sells 60% of its gasoline and other fuels in the U.S. and most of the rest in Europe.
Another prize for Elf would be Conoco Britain’s refinery, considered the most advanced in Europe. The plant can process more than 200,000 barrels a day.
