Has including ESG become a necessity for investors?
ESG (environmental, social, governance) has become a hot topic in recent years, especially lately with the debate over whether pension funds should be able to factor in ESG when choosing investments. At Morningstar's recent conference, the firm argued that ESG has become a requirement for long-term investors. Q2 2020 hedge fund letters, conferences and more Read More
Basically, these two companies have been in the news over the years. They have been under attack - Dow from Daniel Loeb, DuPont from Nelson Peltz of Trian. And so that was sort of the predecessor two companies. Ultimately, Peltz kind of won, but he ended losing out for what came out of his involvement was about [inaudible 01:32:14] chemical situation. He really is one of the great managers out there.
So what we have today subsequent to the merger of these two companies, as I said before, it's this ginormous business where they smash together the verticals and the two different companies creating unbelievable powerhouse [inaudible 01:32:37].
If you think of two giant companies matching together in all their different parts and then slicing off the vertical in another way after they combine, that's what we're going to get here. So today you have a company that has basically three units. You have the Ag business, the materials science, and specialty products. Specialty will be called DuPont, materials science, Dow and then Ag will be Corteva.
Look at the size of their revenues here - 14 billion for AgCo, 44 billion for MatCo, and 21 billion for specialty. These are huge companies. And so even after the breakup, you have national champions coming out. So what you have here is a situation where you're starting company at the top. Again here they are doing great.
What's exciting to us, and we've seen this compare before is we think that after they give birth to these three companies those three are going to have the opportunity to give birth to other companies. So I think this is a situation that we can hold really for years. It's grossly undervalued in our view today, and they're not going to get the first spin or get to the timeline early next year. So you have time to work on it.
My experience is that investors don't like to come in during the transition, during the change. Steve talked about investing in spins over many years, and the fact is there's a handful of guys that do come in when spins are going through some a bit of change. A lot of you are in this room today.
Most investors want to come in after. After it's don,e after it's over, and after it's completely valued. That usually when we like to say it's too good for us and then we move on. We head up to the next day. You get your best opportunity when you are in the midst of the transition when you have the single biggest risk of all execution risks.
So it comes down to the who is the jockey on that force. We are betting on jockeys, not just forces. So we are fixated on who's running the show, what's their backstory, where are they from. We tell our clients just like you're vetting us as managers, we're vetting managers - Our managers are the CEOs of the companies. We have to understand how they do their thing. It's ultimately we're giving them our money, then they're investing in the stock.
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