DowDuPont Spinoff Dow Will Replace DowDuPont In Dow Jones Industrial Average(Not Related)

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A spinoff of a Dow Jones Industrial Average component is not an everyday occurrence.  GE(GE), a former Dow component, recently spun off its transportation business into Wabtec(WAB), but the struggling company was removed from the Dow last June. United Technologies(UTX) plans to split in three next year. Even rarer, in this case, the child will join the Dow, replacing its parent. And, even rarer, in this case, the child’s name is Dow(DOW).

DowDuPont(DWDP), as we have discussed, is splitting into three parts. There was some question as to how the maintainers of the Dow Jones index would handle the spinoffs. The first spinoff will occur next week, on April 1, as DowDuPont spins off its Materials Science business as Dow. Prior to the open of trading on April 2, Dow will replace DowDuPont in the Dow.

Replacing DowDuPont Inc. with Dow Inc. allows the Dow Jones Industrial Average to maintain its exposure to the Materials sector. Additionally Dow is anticipated to have a similar price weight to pre spin-off DowDuPont Inc.The change won’t disrupt the level of the index. The divisor used to calculate the index from the components’ prices on their respective home exchanges will be changed prior to the opening on April 2. This procedure prevents any distortion in the index’s reflection of the portion of the U.S. stock market it is designed to measure. The new divisors can be found in the end-of-day index level files (*.SDL) via the S&P Dow Jones Indices FTP (EDX) site beginning on Monday, April 1, 2019.

Unsurprisingly, the spinoff will also result in a change to the S&P 500. DowDuPont will remain in the S&P 500, and will be joined by Dow, which will replace Brighthouse Financial(BHF). Brighthouse Financial, which was a 2017 spinoff of Metlife(MET), will replace Pitney Bowes(PBI) in the S&P MidCap 400. Pitney Bowes will replace Carbo Ceramics(CRR) in the S&P SmallCap 600.

Dow will also join DowDuPont in the S&P 100, replacing Halliburton(HAL).

Disclosure: The author holds shares in GE and WAB