DowDuPont Agricultural Business to Spin Off as Corteva

DowDuPont’s agricultural business including crop protection and seed and trait operations is being spun-off from its parent company.

As of June 1 the business will be known as Corteva, and will be the largest independent seller of crop inputs in the world. Last year the agricultural business generated $14 billion in sales across 140 countries, broken down to $7.8 billion in sales for corn, soybean, and other crop seeds, and $6.4 billion in crop protection sales.

This move follows within a few years of the $130 billion, 50/50 merger of Dow Chemical and DuPont. Upon the closing of the deal, it was announced that the newly formed DowDuPont planned to split into three publicly traded, independent businesses through a process of tax-free spin offs.

The agricultural unit that was formed at the time of the merger brought together both DuPont’s and Dow’s seed and crop protection units, and once spun off, the new company Corteva is expected to be 56 percent seeds, and 44 percent crop protection.

Corteva is venturing forth at a difficult time. Four consecutive global bumper corn crops, each exceeding 1 billion tons, and an ongoing trade war with China have put significant pressure on grain prices and margins. Low commodity prices, falling U.S. farm income, which is foreseen to top off at $69 billion this year by the USDA (a 44 percent drop from 2013 highs), and tense global markets are not currently ideal, but agriculture’s lack of market correlation and cyclical nature remain a draw.

Industry watchers are forecasting an upswing for Corteva in the coming years. Aleksey Yefremov, an analyst with Nomura, wrote in a research report, “Between 2019 and 2023, management expects $500 million of incremental sales from new seed products and $2 billion from new crop protection,” as quoted in Barron’s, which itself forecasts that Corteva’s earnings before interest, taxes, depreciation, amortization (EBITDA) could increase by 10 percent per year for the next four years based on new product launches and cost-cutting measures.

Indeed, Corteva itself has expectations of EBITDA this year of $2.8 billion. And with estimates that the company can trade for 15 times EBITDA based on market parameters, Corteva’s value currently stands at approximately $42 billion.

The company highlighted in a recent report that impacts from digital technology have had an effect on cost savings by reducing costs, accelerating the development of new innovations and products, and creating a higher level of accuracy.

It also has a positive outlook for its seed traits business, which it has identified as a channel of growth in the coming years. Its Qrome corn strain that was launched this year is expected to earn $50 million, while its PowerCore and PowerCore Ultra varieties are together expected to generate $300 million. And the company’s Enlist cotton, which was launched in 2018, and its Enlist soybeans, which were launched this year, carry expectations of generating $100 million combined.