Cytec Examines “Options” For Coatings Resins
Cytec Industries CEO Shane Fleming dropped an “O” bomb on Cytec’s coatings resins business during a conference call last week. “We are committed to maximizing value creation in this segment and will take the decisions necessary to do so,” he said. “We are currently reviewing all options for this business and we will provide a further update on our plans no later than our earnings guidance on our fourth quarter conference call.”
“Reviewing options” always indicates that a company is entertaining the idea of selling a business. However, it doesn’t always mean that the company will end up selling the business. They often keep parts of the business and sell off and/or close other bits of it.
The coatings resins business generated operating earnings of $68.2 million on $1.4 billion in sales last year. It makes resins for powder, radiation curable, and liquid coatings. It is Cytec’s largest segment by a mile, representing 52% of its 2010 revenues. Its profit margins, at just under 5%, are also the company’s thinnest, with Cytec earning a total operating profit margin of about 10%.
During the conference call, Fleming said he expects the company to make $57 million to $60 million in operating income on about $1.6 billion in sales.
Fleming did keep the door open to making the business work within Cytec, primarily through favoring specialty resins over more commoditized products. “We’ve got a portion of our coatings resins product line right now that’s just now meeting our return on capital,” he said. “That is out first goal. It’s to get the business to a point where it’s doing that.”
For example, in the conference call, Cytec also disclosed it is closing a powder coatings resins plant in Suzano, Brazil, and took a $9 million charge in the third quarter for this shutdown.
But Fleming said that separating the good parts from the bad parts might not be so easy. “You can identify the product areas where you’re covering the cost of capital and generating reasonable earnings,” he said. “But the pragmatic question is, can you pull those apart and operate them separately given the level of entanglement with the asset base?”
Sounds like Cytec might punt that problem to the next owner.
Cytec’s coatings resins business is a bit of a hot potato. It was originally part of Hoechst under the name Vianova Resins. Hoechst sold the business to Morgan Grenfell Development Capital in 1998 for $545 million. Solutia bought the business a year later for about $617 million. In early 2003, Solutia sold the business to Belgium’s UCB for $500 million. It had earned $22 million for Solutia on $559 million in 2002. UCB added businesses to the unit, including, as I recall, rad-cure and amine resins. It sold the unit to Cytec for cash and stock valued at $1,774.3 million in 2005.
During the call, Cytec CFO David Drollick put the book value of the business at $1.4 billion.
The company also had other news last week. In its earnings report last week, the company disclosed it sold its Stamford, Conn., to an undisclosed buyer, for $11 million, on September 30. It said it was leasing back parts of the facility for a seven year period and conducting a $1.1 million environmental remediation on the site. Interestingly, the company estimates the book value of the facility to be $32.5 million. It will take a charge when the remediation project is completed.