Analysis: More heads to roll among top chemical firms?

09 April 2003 16:50  [Source: ICIS news]

LONDON (CNI)--Brendan O'Neill, the colourful chief executive of beleaguered UK specialty chemicals company ICI, is the latest top chemicals boss to be sacrificed on the altar of declining profitability and depressed share prices.  But he is unlikely to be the last.

Major shareholders, bond holders and other stakeholders in poorly performing chemical companies have been increasingly successful in recent months in forcing senior management change. Among the casualties that littered the boardrooms of major firms over the last four months were Dow Chemical's Michael Parker, Clariant's Reinhard Handte, and Monsanto's Hendrik Verfaillie.

All paid the ultimate price for failing to enhance shareholder value. With chemical companies worldwide struggling against the industry's longest and deepest downturn, they are likely to be followed by several more corporate sacrifices before the long-anticipated but oft-postponed recovery begins.

Among chief executives clinging precariously onto power are Jean-Pierre Tirouflet of French specialty chemicals company Rhodia, Bill Joyce at US specialties firm Hercules and John Hunter at American rival Solutia. All three preside over companies with severely depressed share values and battered balance sheets. Tirouflet has already faced calls from some shareholders for his resignation. Although the Rhodia board publicly backed Tirouflet this week by rejecting a draft resolution calling for his early termination, he is widely thought to be living on borrowed time.

It remains to be seen, of course, whether a change at the top will have the effect desired by frustrated shareholders. There is only so much that any chief executive can do in the face of such a deep and prolonged downturn. In several cases, further cost-cutting and asset disposals will doubtless be pushed through with increased vigour by the new appointee. But in many instances, salvation is likely to be heralded not so much by the new broom but by an overall decline in the economic dust storms which have swept the industry for the last three years.

John McAdam, O'Neill's successor at ICI, certainly comes equipped with the determination and experience to weather adversity. His appointment has been greeted positively by the investment community, although some might have preferred an external candidate.

The need to move quickly appears to have favoured an internal appointee; indeed a mark of the alacrity with which ICI chairman Lord Trotman and his board effected the change was illustrated by the fact that McAdam was overseas when the announcement was made earlier this morning.

Analysts at Merrill Lynch were among those to point out that McAdam has done a good job in the face of challenging conditions as head of ICI's paints business. McAdam had previously held senior positions in ICI's Quest and Uniqema businesses, so is familiar with some of the former Unilever activities now the cause of some - but by no means all - of the group's well-documented problems.

Merrill Lynch, which downgraded its full-year earnings expectations following ICI's profits warning two weeks ago, pointed out that the group's problems in recent months have been both poor trading and management credibility. It concedes that management credibility has been addressed with O'Neill's departure. But it stressed that trading conditions for ICI remain tough, the demand outlook is unclear and input costs are high. Coupled with question marks over the future of the Quest flavours and fragrances business plus continuing concerns over group pension liabilities, there are no shortage of prickly issues for McAdam to address.

But in changing the chief executive, ICI has at least bought itself some respite from shareholder pressure. In several other struggling chemicals companies that pressure for change at the top is still seeking an outlet. 

By: Neil Sinclair
+44 20 8652 3214

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