Think Tank: Arkema vinyls fit well with Klesch

05 December 2011 00:00  [Source: ICB]

Pressure on European vinyls participants is intense. Downstream construction markets remain weak and the prospects for growth are poor. The phase-out of mercury-based production puts pressure on chlor-alkali cell rooms in the region.

Many firms in the business, from feedstock chlorine to commoditized end-product polyvinyl chloride (PVC) makers, are close to break-even or losing money. Decent margins seem a long way off.


 The Klesch deal includes Arkema's polyvinyl chloride assets

Copyright: RexFeatures

Consolidation is needed but cannot be achieved easily, given steep environmental liability costs. There are deep concerns about electricity prices that will rise as the EU tackles its climate change goals and countries such as Germany step away from nuclear power.

But what of France and the assets thatArkema is going to transfer to the relatively unknown Klesch Group? Klesch is different in that it specialises in taking on cyclical and high-cost commodity industrial businesses sometimes operating in difficult regulatory environments. "We are prepared to absorb and manage the volatility risk inherent in commodities businesses as well as longer-tailed risk, such as environmental and pension liabilities," it says.

The €1.1bn ($1.5bn) turnover Arkema vinyls business will give the Switzerland-headquartered, family-owned, investment group a chemicals arm to add to its activities in oil, gas, marine transportation and aluminum, backed by its commodity and energy trading activities. Klesch turns over more than $6bn a year and, apart from the vinyl acquisition, is lined up to buy a refinery from Total on the east cost of the UK.

Owner and founder Gary Klesch, who made his name in some controversial, high-profile deals in the 1980s, has said that €70m-80m ($93m-106m) will be invested in the Arkema vinyls activities over the next two to three years. Klesch suggests it will not be making big cuts in the business, but will look for synergies with its industrial and trading activities.

Klesch owns one of Europe's largest aluminum smelting businesses, Netherlands-headquartered BaseMet, so knows all about electrolysis. In 2010 it acquired the Heide refinery and chemical operations in Germany from Anglo-Dutch oil giant Shell and is a producer of ethylene in its own right.

Mr Klesch told France's La Tribune newspaper this week that he did not expect the vinyl assets to return to profit in the near term. But he said the synergies in his group companies could mean the business is better placed against sector leaders in Europe, Solvay and INEOS.

By: Nigel Davis
+44 20 8652 3214

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