August 2009 Archives

In today's age of restructuring, companies are seeking cost savings and synergies left and right. A global and more competitive chemical industry dictates calls for a well-oiled organization that can compete on a cost and technical basis to serve demanding customer needs.

However, simply mashing disparate businesses together into operating units does not generate any real value.

This is especially true for specialty chemical companies, which tend to serve a variety of end markets.

Craig Rogerson, chairman and CEO of US-based specialty chemical firm Chemtura, drove the point home in an interview last week at our New York office.

Rogerson is striving to take the company out of Chapter 11 bankruptcy by March 2010 - a year after its filing.

"In the past, a lot of time was spent force-feeding a common strategy for all the businesses. But the fact is, there isn't one," he said. "There is no one strategy that covers crop protection, petroleum additives, urethanes and pool and spa."

And that's OK, he said. The businesses can make decisions separately, as well as take advantage of certain shared services such as IT (information technology) systems.

Chemtura has submitted a 5-year long-range business plan to the unsecured creditors committee and set an October 30 deadline for all claims against it - the first steps in valuing the company's assets and liabilities so it can emerge from bankruptcy.

The plan recognizes the differences between Chemtura's many businesses. The strategies in the plan are business-specific and driven by the analysis of each one's competitive advantages, he said.

If employees are force-fed a strategy that doesn't apply, there is inevitably going to be that lack of belief that the strategy can be executed.

Photo credit: Sculptors.com

The timing of a special issue devoted to chemical sites and clusters (17 August 2009 issue) could not have come at a more opportune ­moment. Seldom has the concept been tested more ­severely than in the current economic environment.

Many chemical companies, which announced temporary capacity reductions last year or in the early months of 2009, are now taking the decision to make them permanent. And all over the world the industry is taking a hard look at its manufacturing strategy with a view to rationalization.

Companies operating at chemical sites and clusters tend to rely heavily on each other for the supply of raw materials, sale of finished products, as well as benefitting from the reduced cost of sharing services such as power, steam and waste water treatment.

This makes it all the more difficult when one player pulls out. As we are seeing at the Wilton, Teesside, UK site, there is an danger that a domino effect may kick in, with one closure leading to another, undermining the ­viability of petrochemical manufacture there.

There is a good argument for state intervention during these unprecedented times. In the case of Wilton, the government needs to act now if it is serious about retaining a vibrant industrial base in the UK. Chemicals may not be as glamorous as the automotive industry, but they are the essential building blocks of a prosperous economy.

Large chemical sites and clusters which are well connected by pipeline can adapt to changes in production by the players there as they have a wide choice of other potential customers or feedstock providers. For this reason, US chemical clusters have fared better during this downturn as most are based around the Gulf coast with an excellent pipeline network.

It's been a miserable year for chemical mergers and acquisitions (M&A) - the financial and economic crisis put the brakes on deal-making as financing dried up and earnings visibility disappeared.

The big deals announced last year - Dow Chemical/Rohm and Haas, and BASF/Ciba - got done in 2009, but these deals represented the last throes of a multiyear bull market in chemical M&A.

US-based Dow was dragged into closing its acquisition of specialty chemicals giant Rohm and Haas at a peak-of-the-market price, while Germany's BASF announced it would shut down or sell 25 out of the former Switzerland-based specialty chemicals firm Ciba's 55 sites worldwide.

Few, if any, are looking at these types of multibillion dollar deals now.

But while we're in the midst of a seasonal summer lull, investment bankers are hoping that post US Labor Day (September 7), deal activity will rise once again.

And there's some reason for optimism. Agree or not, there is growing worldwide consensus that the Great Recession is over. At the very least, some companies now have greater visibility in their earnings outlook as economies around the world stabilize.

And distressed assets will continue to hit the selling block. Bankrupt US-based specialty chemicals firm Chemtura has put its polyvinyl chloride (PVC) additives business up for sale, according to our sources.

And there are signs that the financing market is coming back, although slowly, and only for companies with investment-grade credit ratings.

In August, US-based industrial gases firm Air Products sold $400m in senior notes with a 4.375% coupon, while Praxair sold $600m in 4.5% notes. US-based chlor-alkali and ammunition-maker Olin sold $150m in 8.875% senior notes while Dow sold $2.75bn in various debt instruments. More are lining up, according to John Rogers, head of the chemical group at ratings agency Moody's Investors Service.

Get ready to deal!

Photo credit: VR business brokers

By: Clay Boswell

The California EPA made a surprising announcement earlier this month: the Developmental and Reproductive Toxicant Identification Committee had declined to place Bisphenol A on a list of chemicals known to cause birth defects.

 

And yet, laws banning BPA are being considered in 20 states.

 

What accounts for the California decision? What do professional toxicologists know that lawmakers and their constituents do not? And why?

 

In a recent survey of about 1,000 members of the Society of Toxicology, only 9% considered BPA a high risk to health, nearly the same number (11%) who considered high-fructose corn syrup a high risk. They were evenly divided between medium and low risk - 39% and 37%, respectively.

 

However, when they were asked to assess the reliability of major news organizations as sources of information regarding toxicology, there was widespread agreement - over 90% -- that television news and local newspapers overstate risks. Over 80% said national newspapers overstate risk.

 

Is this fair? No, but neither is life, as your parents probably told you. Facts will convince scientists, but they will not convince the public. As risk communications expert Peter Sandman has shown, risk, in the public arena, is not only the likelihood of harm, but also the outrage it provokes.

 

It may sound quaint, but people need to be heard. The chemical industry must not only talk, it must also listen closely, acknowledge concerns and admitting to genuine error if it wants the facts to have a chance.