CEO: DuPont exploring ag mergers; Pioneer fate uncertain

The interim CEO of DuPont says he's talking with executives of other large corporations about possible mergers within the agricultural industry, heating up concern about the future of one of Iowa's largest employers — DuPont Pioneer.

"You've seen all the activity in the past six months," said Ed Breen, DuPont interim CEO and board chairman. "Everyone is talking to everyone. That's a true statement. … And I'm personally talking to CEOs of some of the other companies."

Falling corn and soybean prices, with stubbornly high prices for land, seeds and other inputs, are squeezing farm income. Earnings for farmers are expected to tumble 36 percent in 2015 to $58.3 billion over a year ago, according to the U.S. Agriculture Department.

The downturn has sharply lowered the values of DuPont, Monsanto, Deere and other agricultural companies. It's also led to Deere and other companies to cut hundreds of Iowa workers.

With farmers having less money to spend, companies have seen their margins shrink, forcing them to at least consider outside deals to spur growth.

"Consolidation should happen," Breen said. "Clearly, we’ll have our nose in the tent to see if there is anything that makes great sense for shareholders."

Chad Hart, an Iowa State University agricultural economist, said Pioneer is in the enviable position of deciding whether it wants to be a buyer or a seller: It's big enough to purchase another company but not too big, like agribusiness giant Monsanto, where it would be extremely difficult for someone to acquire it.

"It's a good time for them to evaluate what they want to do now," Hart said. "When you're in that spot, you have options that almost nobody else does."

Breen replaced DuPont's embattled CEO Ellen Kullman, who retired earlier this month after nearly three decades with the Delaware-based company.

Kullman's abrupt departure at DuPont, the chemical and seed giant, reignited the debate over whether the conglomerate should be broken apart.

During an earnings call, Breen and other executives fielded analysts' questions about Pioneer's fit in the company, and about the current agricultural downturn.

DuPont reported third-quarter net income Tuesday of $235 million, or 26 cents per share, compared with $433 million, or 47 cents per share, a year earlier. Sales were $4.9 billion, down 17 percent from the third quarter in 2014.

Agriculture was among the sectors pulling down earnings, with quarterly sales falling 30 percent.

An analyst asked Breen if DuPont would be "a seller of ag in the event that there was a compelling value proposition for shareholders versus keeping it."

"Let me answer it this way: We will do what's right for our shareholders to create value, lasting value for them," the 59-year-old executive said.

Breen is possibly best-known breaking up Tyco International twice during his decade-long tenure running a company that once sold everything from fire-detection and security systems to medical products and industrial valves and pipes.

He also said he's worked with companies to build growth organically.

"Tyco was a very different situation," he said.

Breen, who did not rule out holding the CEO position permanently, said he's "not naive about what's going on in the ag space right now."

This summer, Monsanto, the world’s largest seed company and maker of the popular herbicide Roundup, dropped its pursuit of rival Syngenta in a $46 billion deal that would have upended the seed and chemical industry.

And Dow Chemical Co. recently announced it is reviewing all available options for its farm chemicals and seeds unit, which has suffered from falling sales. DuPont is seen as a possible buyer of Dow.

A combination would allow a single business to take advantage of the current expertise each business has now — Pioneer in seeds and Dow's agricultural division in chemicals, analysts said.

Matt Arnold, a St. Louis-based analyst at Edward D. Jones & Co., said if Dow decided to sell "there would probably be interest by DuPont."

And if DuPont decides to make a play for the Dow unit, more could be known about the future of agriculture within the large conglomerate, he said.

Breen said the company had to be cognizant of other opportunities in the industry.

"If we have something that will create significant value for shareholders, we will be seriously looking at it," he said.

DuPont has been under pressure from activist investor Nelson Peltz, co-founder of Trian Fund Management, to push for changes he says would increase DuPont's lagging stock price. One possibility could include splitting the company into pieces, with one unit housing Pioneer's agriculture operations.

Agriculture is DuPont's largest business, accounting for about a third of its $35 billion in sales last year.

Breen said he is reviewing DuPont business units, looking for ways to continue cutting costs. He also said he would consider different options to improve shareholder value. "I've always looked at each situation with an open mind."

Breen said he could see agriculture eventually rebounding, even though experts expect another down year in 2016.

"We're in the bottom of the down-cycle," he said. "Clearly, there's a big opportunity there, and everyone sees that."

Tomm Pfitzenmaier, an analyst at Summit Commodity Brokerage in Des Moines, said a decision to sell the agricultural unit or siphon it off into its own standalone unit would be beneficial for farmers.

Since DuPont purchased the remainder of Pioneer that it didn't already own in 1999, the seed giant has been hurt by being part of a giant conglomerate and a corporate-structure where officials seemed to "distance themselves from their farmer clients," he said.

Pioneer used to benefit from executives working their way up through the company, learning more about agriculture and farming as they did.

"I just don't think Pioneer and their ag business matches up with (DuPont's) paints and plastics," said Pfitzenmaier. "Anything that would get them back to being more farmer-oriented would be a positive for the company."

ISU's Hart said a sale of Pioneer would not necessarily be detrimental to the Iowa economy, where the company is symbolic of the state's dominant role in U.S. agriculture. Iowa would still see significant production and research efforts remain at Pioneer.

“When you look at Iowa’s strength in crop agriculture and livestock agriculture, we’re still going to be at the forefront of the ag business landscape. It’s just a question of will one of the main companies still be headquartered here," Hart said.

"If they were to be sold off, it would have more a PR hit ...  than I would argue a real financial hit," he said.