Huntsman shifts gear with Texaco purchase

Source: ECN

1993/09/19

HUNTSMAN IS due to leap into the world chemical industry's top 50 companies with an almost doubled revenue of around $3.1bn/year following the $1.06bn acquisition of Texaco Chemical. The move, which it announced shortly after finalising details of the separate acquisition of Elf Atochem's French expandable PS business (ECN 2, 9 August), represents a remarkable tour de force for founder Jon Huntsman and a major shift upstream for Huntsman which is focused on styrene, PS and PP.

The purchase will be made through a 50:50 joint venture with Australian entrepreneur Kerry Packer's Consolidated Press Holdings (CPH). Huntsman and Packer have also signalled a clear intent to make together further chemicals acquisitions globally. Jon Huntsman commented: 'The acquisition is a partial fulfillment of our goal and evidence of our intention to be aggressive in the chemical industry.'

The Huntsman-Packer partnership, which began with Huntsman buying a 50% share in CPM's Chemplex facility in Australia earlier in the year (ECN 1 March), is showing many of the hallmarks of the 'leveraged buy-out players' of the early 1980s.

Furthermore, the significance of the timing of such a major investment in a largely petrochemicals business is not lost on industry observers, especially as it follows so soon after Hanson's $3.2bn agreed bid for Quantum Chemical. However, few US market-watchers are yet prepared to predict an incipient upturn in commodity prices.

Pending definitive agreements and governmental approval, the sale is expected to close on 1 January 1994. The main petrochemical assets covered by the deal are Texaco's Port Arthur and Port Neches facilities in Texas - together with an option to acquire 50% or 100% of the propylene oxide/MTBE plant currently under construction at the Port Neches site. The PO/MTBE plant is expected to add $500m/year of revenue when complete in 1994.

Huntsman is highly likely to exercise this option over what is seen as the 'jewel in the crown' of the acquisition, according to the company spokesman. Texaco will continue to oversee the completion and operation of the PO/MTBE plant. It will also market and enter into contractual commitments for the sale of PO and MTBE to be produced, which will not be affected by any exercise of the option. Texaco will also offtake MTBE from the operation for its own use downstream.

Texaco Chemical recorded revenues of $1.46bn in 1992, of which $220m or nearly 18% represented transfers within the company. Since then however, Texaco exited cyclohexane and ethyleneamine businesses, although the production assets remain intact. Texaco's petrochemical business has been a particularly poor performer recording an operating loss of $49m in 1992, which compares with the $399m recorded in the peak year of 1989. Its main European petrochemical operations, Deutsche Texaco AG, were sold to RWE for $1.22bn in 1988.

In addition to the petrochemical assets, Huntsman is acquiring speciality chemicals facilities at Conroe, Texas, and Llanelli, UK; a surfactants facility at Guelph, Ontario (formerly Hart Chemical, acquired from National Starch and Chemical Company in 1992); a lubricant additives and compounds business in Rio de Janeiro, Brazil; and an additives unit in Ghent, Belgium. Also included are research laboratories at Austin, Texas, and sales offices in the UK, Germany, Japan and Korea. Huntsman has not indicated any plans to make divestments.

Texaco will retain the aromatics and solvents/intermediates operations at its refinery at El Dorado, Kansas, and at Star Enterprises' Delaware City, Delaware, site (a Texaco/Saudi Aramco jv). The Delaware City plant includes a methanol plant, which one observer believes has been excluded from the agreement because it is 'not integrated and currently loss-making'.

Texaco Chemical assets capacities
(tonne/year)

Port Arthur, Texas (Jefferson County)
Ethylene 544 000
Propylene 300 000
Cyclohexane (closed)
Ethyleneamines (closed)
Fuel and lubricant additives components

Port Neches, Texas (Jefferson County)
MTBE 315 000
Butadiene 272 000
Ethylene 159 000
Ethylene oxide 385 000
Ethylene glycol 330 000
Surfactants
+ option to buy 50% or 100%
na
PO 180 000 under
construction
MTBE 580 000 under
construction