Transforming a business is no easy feat. First you have to recognize the necessity for change, and then comes the daunting execution, which can take years. And even after a major transformation, it can take time for people to fully appreciate the change and its implications.
Take US-based specialty materials firm Solutia for instance. It is an altogether different animal than the one that entered bankruptcy in 2003. The “former” Solutia featured a commodity nylon business that overshadowed its performance business, accounting for $964m, or 57% of sales, and generating a $50m loss in the first three quarters of 2003 before it filed for bankruptcy.
The company was also saddled with $1.13bn in pension and $428m in environmental and other liabilities – legacy liabilities it assumed when it was spun off from Monsanto in 1997.
In bankruptcy for the next several years, under its new CEO Jeffry Quinn appointed in 2004, it embarked on a strategy to focus on “high-potential businesses” that could deliver returns above the cost of capital.
In 2005, Solutia shut down its acrylic fibers business. The company and partner US-based chemical firm FMC also sold their 50:50 phosphates joint venture Astaris for $255m.
In 2006, Solutia sold its pharmaceutical services business for $74.5m. In 2007, it disposed of its water treatment phosphonates business for $67m.
In 2008, it finally emerged from Chapter 11 bankruptcy protection, shedding much of its legacy liabilities. But it was still known in some circles as “the nylon company” – a moniker that implied flat growth and exposure to volatile market forces.
In June 2009, Solutia shed its large nylon business for $50m, completing its transformation into a producer of advanced interlayers, performance films and technical specialties.
After two acquisitions in 2010 boosting its window films business and adding ethylene vinyl acetate-based solar encapsulants to its portfolio, Solutia sports enviable high-margins and strong growth prospects. Now if only investors would pay attention. Solutia at $15.70 trades at a modest EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortization) multiple of 6.3 times trailing 12-month EBITDA.
We talked to CEO Quinn about the transformation and his growth plan in the September 27 issue of ICIS Chemical Business, which could entail the company adding a fourth business in the future.
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