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Trinseo (Styron) Drops Its IPO

Trinseo has withdrawn its prospectus for a $400 million initial public offering of stock.

Trinseo is the rarely used name for Styron, the former Dow styrenic polymer and polycarbonate unit. Dow sold the unit to the private equity firm Bain Capital for $1.6 billion in 2010.

Bain changed the name to Trinseo for some reason and filed for an IPO two years ago. In its letter to the Securities and Exchange Commission, dated June 15 pulling the registration statement, the company would only say that the withdrawal “would be consistent with the public interest and the protection of investors.” I think that just means that no one gets hurt.

Why Doesn’t Radio Shack Sell 3D Printers?

About a year ago, I decided the best deployment of unused capital in my Scottrade account was to purchase shares of Radio Shack. My investment thesis was this: 1) I bought a TRS-80 there 30 years ago. 2) I made guitar effects pedals using Radio Shack parts there about 20 years ago. That’s it. The whole idea was predicated on nostalgia. I’m in the red thus far.

I have learned a lot about Radio Shack—the business side, not where they keep the capacitors—after the fact. (The capacitors are in a metal case with pull out drawers near the back.)

For instance, the profit center of the company is the stuff you normally think of when you think of Radio Shack: The thing that connects one electronic gizmo to another, like when you are installing an entertainment center. The problem is there isn’t much growth in that business.

The growth comes from smart phones and the like. The problem here is that the profits here are slimmer and Radio Shack has too much competition.

This is where 3-D printers come in and why my griping about Radio Shack is relevant to chemistry.

I’ve written about 3-D printing in the past. It is, essentially, a new technique for processing plastics. To make a part, one doesn’t need a costly mold. But the tradeoff is that the user can’t make many of the same part very efficiently. Thus, the technique is ideal for designers to make prototypes. And 3D printing also holds promise for hobbyists and tinkerers of all kinds, especially when firms such as 3D

For sale, at Staples, not Radio Shack.

For sale, at Staples, not Radio Shack.

Systems are offering machines for as little as $1,300.

It would seem like Radio Shack would be an ideal retailer for 3D printers and, perhaps more importantly, the consumables involved: cartridges of acrylonitrile-butadiene-styrene and polylactic acid. 3D printers are today very much like ham radios were 40 years ago and computers were 30 years ago: outlets for curiosity and creativity. 3D Printers are also cool. Who wouldn’t be fascinated seeing a 3D printer in a store, perhaps churning out a new object right before your eyes in a demonstration? Why, people might even walk into Radio Shack deliberately to see a 3D printer up close. It would be the first time the store had a draw since it did away with the Battery Club.

But there is a first retailer getting into the 3D printing business with 3D Systems printers: Staples. Is that a good fit? I suppose. They sell toner and report covers. It is the store of last resort for Blue Fun Tak in early September. I think Radio Shack would have been better, to be honest. But Staples outfoxed Radio Shack and that’s the point.

Tough Times For Propylene Buyers

There is little doubt that the advent of shale is opening the spigots for massive amounts of new ethylene production in North America. However, a consequence of all the additional production of ethylene is much less production of propylene. Chuck Carr, a propylene analyst at IHS Chemical, gave a great overview of the situation at IHS’s petrochemical conference down in Houston late last month.

As ethylene makers seek to take advantage of the abundance of ethane by cracking less naphtha, they are producing far less propylene. A naphtha cracker, Carr pointed out, will make about a half ton of propylene for each ton of ethylene produced. An ethane cracker will only put out about 20 kilograms of propylene for each metric ton of ethylene made. The amount of propylene coming from steam crackers has declined by 30% in only a few years. Overall, after reaching a peak of about 16 million metric tons in 2007, North American polypropylene production has declined to about 14 million metric tons. Some 54% of propylene is made in oil refineries, only about 40% is now made in ethylene crackers.

Propylene prices are rising, putting polypropylene makers in a tough position. As I heard over and over again at the IHS conference and then at NPE, a plastics trade show put on in Orlando last week, high polypropylene costs are tempting plastics converters to switch to high density polyethylene when they can. Soft drink bottle caps are a key battleground application. If they have seemed a little different lately, now you know why.

One company that jumps out at me as being in a tougher bind than most is Braskem, which recently purchased the polypropylene businesses of Sunoco and Dow Chemical. According to Carr’s presentation, the company has the largest deficit of propylene in North America. In fact, Braskem has no production of propylene in the region.

The company’s Marcus Hook, Pa., plant is downstream from Sunoco’s Marcus Hook refinery. Or at least it was. Sunoco idled the refinery in December and looks to permanently shutter the unit over the summer. It is ending a supply agreement with Braskem in June. The supply agreement covers about 60% of the facility’s 350,000 metric tons of annual polypropylene capacity. A contract with another supplier in the region covers 19% of the capacity.

In its 20-F regulatory filing put out this week, Braskem says it being supplied by Sunoco out of Sunoco’s Philadelphia refinery and from other sources. The polypropylene unit is still operating at normal levels. The company is also in discussions for long-term supplies of propylene from other refineries in the Northeast. “At this time, we believe that, provided Sunoco continues to supply us until June 2012 or we are successful in sourcing additional feedstock supply, the operations and capacity utilization of our Marcus Hook, Pennsylvania plant will not be materially affected,” the company says. The company also raised the prospect of delivering to customers from other plants.

One wrinkle for the Braskem is the Philadelphia refinery. Sunoco is seeking a buyer for that refinery as well. If it can’t, Sunoco is planning to idle it by this summer as well. That would limit Braskem’s options a bit. But maybe Petrobras or PBF Energy or someone else will buy the refinery or something. I do hope that Braskem finds a way to keep the polypropylene unit running.

There seems to be propylene issues at the plants it purchased from Dow in Seadrift and Freeport, Texas. A propylene supply agreement, presumably from Dow, is set to expire in 2013. Dow will likely use that to make its own propylene oxide, acrylic acid, and epichlorohydrin. Braskem, however, probably has more options on the Gulf Coast than it does in the Northeast.

As You Sow Flies The Flag Of Victory Over McDonald’s

McDonald’s is testing double-walled paper coffee cups at 2,000 of its restaurants, primarily on the West Coast, to replace the expandable polystyrene cups it currently uses. McDonald’s says it testing market acceptance, performance, and operational impact of the new cups.

The advocacy group As You Sow, which organizes shareholder resolutions at companies to improve environmental performance, is claiming victory, noting that this comes “in response” to a shareholder resolution it put in McDonald’s 2011 proxy. The resolution asks the board to issue a report on more “environmentally beneficial beverage containers” and the like.

When I asked McDonald’s if the action was because of As You Sow’s efforts, a spokeswoman responded, “This test is a result of our efforts as a company to continually seek more environmentally sustainable solutions.”

According to As You Sow’s press release, the measure received the “support of nearly 30% of total company shares voted.” That is technically true, but a somewhat flattering way of putting it. The measure received 23% “FOR” votes, 55.44% “AGAINST” votes, 21.57% abstentions. As You Sow’s 30% throws out the abstentions.

As You Sow says the 30% result is great for an environmental resolution. Perhaps. Its website also has advice on how shareholder proposals ought to be interpreted:

In most cases, an investor with 3% ownership in a company would be one of the top shareholders and thus even single digit votes may gain considerable attention from a company. Social proposal votes more than 10% are difficult to ignore and often result in some action by the company to address the shareholders area of concern. Votes that receive 20-30% or more have garnered strong support from mainstream institutional investors and send a clear cut single to management. Only the least responsive of companies is willing to ignore one out of every three or four of its shareholders.

I can go both ways on this. More than two thirds of the votes cast for the cup proposal didn’t even want McDonald’s to study paper cups. Would ignoring them somehow make McDonald’s super responsive to the wishes of its shareholders? On the other hand, it could be that some institutional shareholders reflexively vote these down because they see the shareholder proposal as a subversive tactic. These same shareholders might not object, or even notice, if McDonald’s management did a trial run of paper cups without proxy prompting.

If I were a McDonald’s shareholder, I might have voted for the measure as stated (why object to a study?), but I wouldn’t think that a major rollout of paper coffee cups would have much chance of success. We must remember that McDonald’s coffee is hotter than a thousand suns. (That might not be a scientifically precise statement.) Remember that lawsuit? This is probably why the company still uses EPS when it gave up on plastic packaging for burgers a couple of decades ago. A McDLT won’t burn you; the coffee will. I doubt a paper cup, even a “double walled” one, will contain the extreme heat quite like plastic. International Paper’s Hold & Go cup either is or is something like the cup McDonald’s will use. If the cup performed as well as plastic, the press release introducing the product probably would say so. It doesn’t.

Monaca, Pa!

Shell Chemical has selected the Pittsburgh area town of Monaca, Pa., as the site of its new ethylene cracker complex. Actually it will be in Potter and Center Townships, which are near Monaca, Pa. (Pop. 6,286, according to Wikipedia). But that narrows it down a lot more than what Shell was previously saying: “I don’t know, Appalachia somewhere or something.”

Monaca is a bit of a chemical town. It is host to a Nova complex that makes Arcel polystyrene resins for foams and expandable polystyrene. Nova calls this the Beaver Valley site. (If that name conjures an image of a valley teaming with beavers felling trees willy nilly, I know the feeling.)

This doesn’t mean that the plant is a done deal. As its press release explains:

“The next steps for this project include additional environmental analysis of the preferred Pennsylvania site, further engineering design studies, assessment of the local ethane supply, and continued evaluation of the economic viability of the project.”

The company isn’t saying much more about the project. It will feature an ethylene cracker and downstream polyethylene and ethylene glycol plants. We already knew about that. There’s nothing new about the size or the timing.

I do have a couple of thoughts about the project:

1) Isolated ethylene and derivatives complexes never work out. If the ethylene cracker goes down, how do you run the derivatives plants and where does the ethane feedstock go? If one of your derivatives complexes goes down, do you run the cracker at reduced rates? It would be nice to see another cracker complex built in the neighborhood that would be connected to the Shell site. I suspect that we’ll probably hear from another company with cracker plans in the region before long.

2) I doubt Shell will build its own polyethylene plant. It hasn’t had any skin in the polyolefins game since it sold its stake in Basell to Access Industries in 2005. I am expecting a partner of some kind on the polyethylene unit. If it does go it alone, I would think that the plant would spew out commodity grades of polyethylene. One example of such a product would be high-density polyethylene for extrusion blow molding—used to make milk jugs. Shell would need something that is relatively easy to sell. Also, the company wouldn’t want to do a lot of switching of grades at the plant because of potential problems with excess ethylene, as I mentioned above.

All this aside, it is great to see such a big chemical plant being contemplated for the region.

Georgia Gulf To Westlake: Not So Fast!

You may have heard that Georgia Gulf has rebuffed a $30-per-share takeover bid from Westlake. Here are a few points:

1) By my calculations, the bid is worth just over $1 billion, or close to $1.7 billion, including Georgia Gulf’s long term debt. Georgia Gulf’s expectations for EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2011 are between $245 million and $255 million. This makes the offer seem a little cheap. However, Georgia Gulf’s book value (equity less intangibles and goodwill) is about $243 million.

2) Georgia Gulf has been through heck and back. It bought building products maker Royal Group technologies for $1.6 billion in 2006. Congratulations if you recognize that this was the worst possible time for a company to increase its exposure to the housing market. The downturn didn’t bankrupt Georgia Gulf, but it came close. The company almost got delisted from NYSE when its market cap slipped under $75 million. It needed time from creditors for payments due. Moreover, a debt for equity swap amounted to a quasi-bankruptcy: shareholders were diluted, though not completely wiped out.

3) Strategically, this is a no-brainer for Westlake. Both are integrated chloro-vinyl companies. Westlake is integrated back into ethylene; Georgia Gulf isn’t. Both make fabricated products, with Westlake’s business oriented towards pipe and Georgia Gulf leaning towards window and door profiles. Westlake also makes polyethylene. Georgia Gulf has a cumene/phenol business.

4) Expect more to come. I would have to think that Westlake will follow with a tender offer. And given that the stock is trading at above $30 per share, I would expect to see Westlake sweeten the deal somewhat. I’m not terribly sure if the bid makes it into the courts or to a proxy fight.

5) Georgia Gulf is preparing a defense. Westlake already owns about 4.8% of Georgia Gulf. A poison pill, in the form of a rights offering to Georgia Gulf shareholders, will prevent Westlake from owning more than 10%.

6) Georgia Gulf had a staggered board until 2010. A staggered board means that not all of the directors are up for reelection every year. Now, Georgia Gulf directors are up for election when their term ends. By my reckoning, Georgia Gulf has five of its eight directors up for reelection later this year. Three will serve until 2013. This might present an opportunity for Westlake to stack the board, depending on the nomination process.

7) I wouldn’t be surprised to see competing bidders. The last big takeover drama in the industry was Air Products’ run at Airgas. There were few potential suitors for Airgas. There may be more for Georgia Gulf. Mexichem comes to mind. It is trying to buy Wavin, Europe’s largest producer of plastic pipe for about $650 million. Why not drop that and string together a Georgia Gulf bid? Braskem also comes to mind. It is the big wheel in Brazilian chloro-vinyls and has been acquisitive in recent years in the U.S., buying both Dow’s and Sunoco’s polypropylene business.

8) There are echoes of Air Products/Airgas in Westlake’s bid. Both Airgas and Georgia Gulf called their unsolicited bids opportunist attempts to take advantage of share prices that were temporarily in the cellar. Both Air Products and Westlake responded that with their offers, shareholders of the target companies wouldn’t have to wait for fortunes to turn around to see a payday. Nearly a year ago, Air Products was forced to drop its $70 bid. Now Airgas is trading at above $80 per share.

9) One has to concede the first riposte to Georgia Gulf. Shares were worth more than $40 last year before the grumblings over European debt last summer. Georgia Gulf had been on the upswing in recent months. Westlake seems to be acting now before its opportunity slips away.

Whoa! That’s A Lot Of Ethane

A new report from BENTEK Energy and Turner, Mason & Co. says that because of shale, we should expect a 40% increase in natural gas liquids production in five years. The increase amounts to 950,000 barrels per day of new natural gas liquids by 2016.

That is an extraordinary amount of new feedstocks for the chemical industry. I ran my own estimates of how much ethylene production all these NGLs can support. I assumed 75% ethane content in the NGLs. I came up with 11 million metric tons of ethylene per year. These NGLs would also yield about 3.7 million metric tons of propylene (assuming propane from the NGLs is dehydrogenated) and other stuff.

If the report, and the Chemical Notebook’s estimates, are correct, or nearly correct, then all the announcements we’ve been hearing about new ethylene capacity aren’t nearly tapping out shale’s potential for petrochemicals. John Stekla, CMAI’s director of ethylene, gave a recent presentation where he forecast about 6 million metric tons of new ethylene capacity by 2016. (see slide 29).

If not feedstocks, there is a factor that would limit the amount of new ethylene capacity that can be built. That is markets. Can the world really swallow more than 11 million metric tons of polyethylene, vinyl chloride monomer, ethylene oxide, and other derivatives from the U.S.? The world ethylene market today, Stekla points out, is around 120 million metric tons.

My own thoughts are that we probably will see more capacity announcements in the U.S., though not to the tune of another 5 million metric tons.

Notes On Dow’s Investor Day

Yesterday Dow held its annual investor day. The main theme was that the pieces were in place for strong earnings growth. In an interview after his presentation, CEO Andrew Liveris complained that the company is still being pigeonholed unfairly as a commodity chemical company by Wall Street. The post-recession peak for Dow shares, early this past May, was more than $42. Now they are trading in the low 20s.

I am writing a feature story on the event for C&EN. I do have a couple of observations that I wanted to share on the blog right away.

  • Dow is walking back plans to divest high-density polyethylene. About a year ago, Liveris floated a trial balloon about the sale of HDPE. The distinction the company has been making has been between its “specialty” solution process polyolefins and “commodity” Unipol-based, gas-phase polyolefins. Liveris told me yesterday that Dow now plans to convert gas-phase plants into solution-based plants at “integrated” facilities. He specifically mentioned Alberta. I would gather that this means swapping out the reactors and leaving the rest of the plant infrastructure in place.
  • Polyolefins licensing is a keeper for Dow. Polypropylene licensing was left out of the sale of the polypropylene business to Braskem. Dow really intends to keep this. The same goes for its stake in Univation, which licenses Unipol polyethylene. Howard Ungerleider, who leads the Performance Plastics division for Dow, told me the polypropylene licensing unit is a pretty big earner for Dow and has been gaining market share.
  • Dow AgroSciences is a keeper, too. When Dow was going through a crisis in early 2009 related to its purchase of Rohm and Haas, Liveris indicated that he might sell this unit. I asked him if the company is still on the fence about this. He said that the company is “Not on the fence and fully on the farm.” Though the unit is small compared to competitors like Monsanto, Liveris said that the unit is “punching above its weight.”
  • Dow’s acquisition strategy will be modest. The company is steadily digesting the debt related to Rohm and Haas. One might think that the company would be planning acquisitions again. Not so. Liveris says the company is only considering smaller acquisitions to round out his existing portfolio. He mentioned IBM, where Liveris incidentally is a director, as a model.
  • Andrew Liveris is a Michigan Wolverine fan. I talked football with him while arranging my stationary on the conference table. He is very excited about the 5-0 start. I am too. I warned him, as a Michigan alum, not to put too much faith in a good Michigan start. (I was there.) He said it was a new era with new head coach Brady Hoke. I hope Liveris is right. But I’ll believe it when we beat Ohio State.

Nova Chemicals Gives More Details On Nova 2020

Nova had its second quarter earnings conference call yesterday. I was interested in whether the company would give more details about its plans to build two new polyethylene plants–one in Alberta and another in Ontario. As announced last June, the project also involves an upgrade and an expansion of its Corunna, Ont., cracker. When Nova is finished, the cracker will only crack natural gas liquids, mostly ethane from the Marcellus shale in the Pennsylvania area.

There are a few new details, not many, though I think I understand the project a little better now. Here are the takeaways:

1) The company will have a decision “shortly” on what pipeline plan it is going with. CEO Randy Woelfel says the company is currently analyzing Sunoco Logistics’ “Project Mariner West”. This project involves a 25-mile pipeline being constructed between MarkWest Liberty’s Houston, Pa., plant and Sunoco Logistics’ pipeline grid in Vanport, Pa.

2) There is enough spare capacity in Alberta—the site runs at operating rates of about 85%–to accommodate a new polyethylene plant.

3) Nova says that the total capital needed for Nova 2020 could exceed $1.5 billion over the next seven years.

Dow Selling Polypropylene To Braskem

There has been about as much news this week about Dow Chemical as there has been about the debt ceiling. (These two stories have even converged). I almost want to rename this blog The (Dow) Chemical Notebook.

In addition to building a ethanol-based polymers plant in Brazil, a massive $20 billion complex in Saudi Arabia, and a strong beat on earnings, Dow is also selling its polypropylene business to Braskem for $340 million–6.7x EBITDA for you deal nerds out there.

I do have a few observations:

1) This is the least surprising deal ever. Dow has been vocal about selling the business; Braskem has been public about wanting to make another North American acquisition to follow its purchase of Sunoco’s polypropylene business.

2) Dow’s polypropylene catalyst and licensing business isn’t included in the transaction. Since it bought Union Carbide in 2001, Dow has done some really nice work in advanced donors for polypropylene catalysts, which have given the Unipol PP platform a shot in the arm. I am very curious to see what Dow does with that business. And for that matter, I am curious to see what the future has in store for Dow’s HDPE business—which it has indicated it might divest—and its stake in the Unipol polyethylene licensing firm Univation.

3) Dow’s release implies a sequel. “The two companies will continue to evaluate potential future collaborations on growth opportunities in connection with their strategies,” it said.

4) Nowadays, propylene is hard to come by in North America. I wonder what Braskem is doing about sources of it.