Great Lakes Takes Big Steps for Future Growth

04 March 2002 00:00  [Source: ICB Americas]

As Great Lakes Chemical Corp. (GLCC) sells off its OSCA Inc. business, the company is striving to focus on its core competencies as it tries to alter the public's perception that the company is "only" a flame retardants (FR) manufacturer.

To help achieve its strategic objectives, last month GLCC entered into an agreement where Houston-based BJ Services Company (BJS) will buy GLCC's 53 percent stake in oil field services provider OSCA for around $220 million in cash. The OSCA deal will bring GLCC's net debt down by roughly 50 percent, according to the company. After the deal is completed, Mark Bulriss, Great Lakes chairman and CEO, believes the company "will have one of the strongest balance sheets in specialty chemicals."

Lafayette, La.-based OSCA, GLCC's energy services and products business unit, had sales of $175.9 million in fiscal 2001, about 11 percent of company sales. This is a 33 percent increase from 2000 sales of $131.9 million. However, the unit saw a 2 percent decrease in sales in the fourth quarter of 2001 to $42 million from the year-ago period, and the oil industry has seen a slowdown in exploratory activity in recent months.

Mr. Bulriss says the transaction will allow the company to concentrate on the growth opportunities in its core businesses: water treatment, polymer additives and performance chemicals. Mr. Bulriss is passionate about his company having "focus, focus, focus. You don't go in 27 different directions." He adds that a focused company is better prepared to deal with a weak economy.

Overall, the company had sales of about $1.6 billion in 2001, a drop of 5 percent from the year-ago period. GLCC's polymer additives division, responsible for its flame retardants and polymer stabilizers, was responsible for 36 percent of sales or $581.7 million, a drop of about 16 percent from the year-ago period. Performance chemicals, which includes GLCC's fine chemicals business, posted a sales decline of 14 percent to $316.2 million, or about 20 percent of the total.

The company's water treatment business was responsible for about 32 percent of total sales with $507 million, an increase of about 7 percent from the year-ago period. "Water treatment keeps knocking the ball out of the park," Mr. Bulriss says. "We're using technology to drive new customer demands and develop new products for our existing customers."

Lehman Brothers analyst Timothy Gerdeman points out that companies like GLCC, "with broad exposure to the plastics industry, have been disproportionately hard hit by the recession," adding, "we continue to highlight the obvious need for additional industry consolidation."

Other analysts say it is likely that GLCC will sell more noncore businesses in the future. The company is restructuring its fine chemicals business, which is expected to be completed by mid year. One analyst speculates that the fine chemicals business may be up on the block soon as well.

"Last year was a difficult year for everybody, and the chemical industry especially," says Mr. Bulriss. "[But] I've never felt better walking into a new year. We will continue to look for ways to further improve our focus, and this is the only way that the specialty chemicals industry will be successful."

Mr. Bulriss stresses the need to divest noncore businesses that represent only a small part of total revenues. "Thinking outside the box may not be that good a thing if it is not focused," he says. "Our vision for Great Lakes is a customer-focused, specialty chemical company capable of delivering 8 to 10 percent organic growth by accelerating new products and leveraging best practices with a focus on continuous productivity improvement."

Akin to the adage about building a better mousetrap, Mr. Bulriss says the company offers the customer what it wants. Using the company's line of FRs as an example, he points out that GLCC offers both halogenated and non-halogenated FRs. "Brominated FRs remain the most cost-effective option," he points out, "but we let the customer decide." He points out that 70 percent of the company's customers need not only FRs, but polymer stabilizers as well, and "we offer both."

"The name of the game," says the CEO, is organic growth. "You have to have new products." In 1998, less than 5 percent of the company's sales were from new products. The figure rose to 13 percent for 2001, with a goal of 17 percent for this year. The target is 24 percent of sales from new products by 2004, with a long-term goal of 30 percent.

"You've got to have real products with real earnings and a strong balance sheet. The chemical industry is one of the most financially conservative industries, and we're proud of that," says Mr. Bulriss. "We're not dot-comers. [Alan] Greenspan can talk about the Internet driving the economy, but plastics are used to make those computers. The great thing about the polymer industry is that there are still many growth opportunities available to our customers. The inherent productivity brought about by substituting materials with plastics will continue to drive growth well into the future."

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