What Might Be Tagged At Dow’s Yardsale?

As you have may have heard, Dow Chemical plans to sell more businesses. Back in December, the company said it would get rid of its epoxy resins and chlorine-related business, which would make the bulk of $3.0 to $4.0 billion worth of divestitures. Mind you, these numbers here are a little funky. They refer to the pre-tax proceeds to Dow from transactions that aren't necessarily even being negotiated yet. However, the company tends to get strong valuations when it sells businesses, so I would expect that the proceeds from deals would be within the range and even towards the top of it. Last week, at an investor event in Saudi Arabia, the company announced it would put an additional $1.5 to $2.0 billion in businesses up for sale. CEO Andrew N. Liveris wouldn't say what the businesses are, but he would certainly characterize them. They would be nice businesses, likely coming out of its Performance and Functional Materials units, and perhaps reasonably profitable. But they would be more meaningful to potential buyers than they currently are to Dow. They would be, Liveris promised,  "Lots of small, little businesses that you never even track, that you never follow, and that you never even knew we had." He was addressing analysts, thus casting a wide net. They are only acquainted with the solid form of ethylene known as polyethylene and Dow AgroSciences. The Chemical Notebook takes Liveris' remarks as a challenge. What are the most obscure Dow businesses? Two that jumped out at me are are Dow Plastics Plastics Additives And Dow Oil & Gas. Dow put the plastics additives unit up for sale last year and then withdrew it from the market. Oil and Gas is tiny, about $270 million in annual sales. It is a market facing unit that sells chemicals for oil and gas exploration and extraction. This is a very marketable business, with companies such as Solvay and Ecolab plunging further in this area. My only reservation about Dow selling this business is that the chemistry on offer in oil and gas overlaps with other Dow businesses. Additionally, I combed through Dow's Product Safety Assessment Finder, which by the way, is a great source of information for many chemicals. I asked question "what are the real oddball businesses?" Here are few (Don't take this as a list of possible sales, though. Some, as you will see, are likely keepers.): Silicones and Feel Modifiers: These sound dirty. They're not. They are used in leather finishing. They also sound like something Dow Corning would sell. With a tradename like ROSILK, I'll guess these came from Rohm and Haas. ADSORBIA...

Read More

The U.S. Cracker Leader Board

Back in March 2011, I jotted down on my notebook a ranking of companies most likely to build a U.S. ethylene cracker. It was to be a post for this very blog. But before I got around to posting it, Chevron Phillips announced a cracker project, stealing my thunder. I didn’t end up putting it up. And thank goodness for that. It was a pretty cruddy list. I can’t find it now, but I am pretty sure that Shintech, SABIC, and LyondellBasell were on top. None of these has formally announced a project. That said, now that we are approaching the construction phase for the projects that have been announced over the last three (three!) years, it might be worthwhile to compile a ranking of how likely it is that the projects will be built (at something resembling their appointed schedules and without major modifications). Welcome Plastics News readers! And thanks, Don, for the kind words. 1) Chevron Phillips: The company is building a cracker in Baytown, Texas, and a pair of polyethylene plants in Sweeny (Old Ocean), Texas. Probability: nearly 100%. Only meteors or aliens could stop this one. I just interviewed Ron Corn, who has been in charge of these projects for the last couple of years. The sites have been prepared. The equipment, and even the structural steel and pipe, have been ordered. The contracts and the air permits are in hand. Construction is set to begin in earnest within months. 2) Dow Chemical: The company is building a cracker in Freeport, the keystone of a program that is also seeing the company build a propane dehydrogenation plant and reopening a cracker in Louisiana. The dehydrogenation plant is already under construction. Probability: 90%. Like Chevron Phillips, it seems that equipment and contracts are in place. A draft permit from EPA came for the facility this month. That said, Dow has an unrivaled capacity to change its mind on capital expenditure decisions. (Remember the crackers in Oman, Russia, and India? The Michigan battery plant? Ethanol-based polyethylene in Brazil? The Canadian wheat straw composites plant?) However, what Dow is doing on the Gulf Coast is much less risky than any of those things. The company did originally promise a second PDH plant, which I would say is a little less probable than its other builds in the region. 3) ExxonMobil: The company is building a cracker in Baytown and polyethylene capacity in Mont Belvieu. Probability: 85% There have been challenges to the environmental permitting here. I doubt that would be enough to sideline the project.  4) Formosa Chemicals and Plastics: A medium-sized ethylene cracker and propane dehydrogenation unit...

Read More
Eastman CFO Outlines Acquisition Strategy
Jun20

Eastman CFO Outlines Acquisition Strategy

Last week, the Chemical Notebook headed to New York City to attend the 2012 IHS Chemical Financial Forum. Nice event, attended by 60 or so. It was emceed by Robert Westervelt, editor-in-chief of IHS Chemical Week. My dear longtime frenemy did a masterful job moving the conference along and asking good questions, as he usually does. It was a day packed with a lot of good speakers. Curt Espeland, chief financial officer of Eastman Chemical, gave the keynote, which was an overview of his company’s merger and acquisition strategy. This is a pretty timely topic given that Eastman is set to complete its $4.7 billion acquisition of Solutia next month. Eastman’s current M&A strategy is rooted in the turnaround that former CEO Brian Ferguson led a decade ago. Eastman had been a serial acquirer. It made expensive purchases of publicly traded firms like McWhorter Technologies and Lawter International to build up its coatings, adhesives, specialty polymers, and inks (CASPI) business. The acquired business didn’t congeal as planned. When Brian Ferguson took over in 2002, he initiated a three-part strategy for the company, Espeland says. The first part: Shrink before you grow. Eastman sold off $3.2 billion worth of business since 2002. This includes the sale of a large chunk of the CASPI-related businesses it had bought. Momentive now has those units. Eastman sold its polyethylene business to Westlake. A series of divestitures got Eastman out of polyethylene terephthalate. “Before we started this journey, we were the largest PET producer in the world,” Espeland told the audience. “Today we don’t even make the product in any meaningful way.” Worth noting here is that while it got out of commodity packaging polymers, Eastman kept specialty polyesters, leaving intact a core chemistry capability. This seems to be paying off with its Tritan polymer. The next part of Eastman’s strategy: Earn the right to grow. This entailed improving the profitability of the business that it kept. Now with new CEO Jim Rogers, Eastman has switched to its third phase: growth. “Joint ventures and acquisitions has become the primary tool we’re using to pursue that strategic shift,” Espeland said. Curiously, the pre-Ferguson era fomented queasiness over acquisitions at Eastman. “In fact, we had a negative bias against acquisition because of our history in the late 90s,” he said. Management had to reverse that. The company started out small, focusing on small “bolt-on” acquisitions. Through purchases such as Genovique Specialties and Sterling Chemicals, Eastman has quietly doubled the size of its non-phthalate plasticizer business, to $600 million. These acquisitions helped Eastman build capability and confidence—enough to attempt the purchase of Solutia, a deal about 30...

Read More

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...

Read More

Will Hambrick Head Berkshire Hathaway?

Warren Buffett’s annual letter to Berkshire Hathaway shareholders is out this week. Normally, the annual letter of one of the most widely read documents in the business world. This year, given that Warren Buffett has been in the news so much recently with the Buffett Rule and all, it is probably being perused more closely than usual. There is something for the chemical industry in the letter: On September 16th we acquired Lubrizol, a worldwide producer of additives and other specialty chemicals. The company has had an outstanding record since James Hambrick became CEO in 2004, with pre-tax profits increasing from $147 million to $1,085 million. Lubrizol will have many opportunities for “bolt-on” acquisitions in the specialty chemical field. Indeed, we’ve already agreed to three, costing $493 million. James is a disciplined buyer and a superb operator. Charlie and I are eager to expand his managerial domain. I wrote up a small story in C&EN based on this passage. The idea being that Lubrizol is on the hunt for more small acquisitions. My boss, assistant managing editor Mike McCoy, had an even more interesting interpretation of the line “eager to expand his managerial domain.” Mike suggested that maybe “managerial domain” would extend to the whole of Berkshire Hathaway. In other words, perhaps Buffett has Hambrick in mind as a successor. I snickered at first. It seems like a crazy idea because it would have Buffett giving the keys to the kingdom to someone who has only been with the company since September. And Hambrick would go, in relatively short order, from running a mid-sized specialty chemical maker to heading all of Berkshire-friggin’-Hathaway. BUT…Mike isn’t the only one to so speculate. This well-reasoned article by Harry Wallop in the Telegraph puts Hambrick as one of four possible candidates along with BNSF CEO Matthew Rose, reinsurance chief Ajit Jain, and Geico boss Tony Nicely. The “eager to expand his managerial domain” appears in paragraph following the revelation that he has come up with an unnamed successor and two backup candidates. Why was James Hambrick the next thought to come to mind? The phrase “eager to expand his managerial domain” is a cutesy way of hinting at a successor. Warren Buffett is fully capable of cute. Here he is playing the ukulele on television. Another line from the letter that I would like to overanalyze is this: “James is a disciplined buyer and a superb operator.” That is an enormous compliment coming from Warren Buffett. Picking stocks and buying companies is what Warren Buffett does. Go to any business section of any book store and you’ll oodles of books on Buffett’s methods....

Read More

The Announcements Thus Far

I am working on C&EN's annual world outlook piece. I put together this table for that package. These are all the formal announcements of new ethylene capacity in the U.S. It doesn't count companies, such as Formosa, which have been studying new capacity but haven't put out anything official. It also doesn't include Nova's expansion plans in Canada. The grand total is nearly 7 million metric tons of new capacity. That is about 5% to 6% or the present world total. Moreover, all of this capacity has been announced only since late March. Also, it doesn't include Ineos, which is studying a 115,000-metric-ton expansion at its Chocolate Bayou cracker. SHALE BONANZA U.S. expansions can total nearly 7 million metric tons by 2017 COMPANY LOCATION DATE CAPACITY ('000s METRIC TONS PER YEAR) NEW CRACKER COMPLEX ChevronPhillips Cedar Bayou, Texas 2017 1500 Dow^a Gulf Coast 2017 2300 Sasol^b Lake Charles, La. TBD 1400 Shell Chemicals Appalachia 2017 1000 EXPANSIONS OF EXISTING FACILITIES LyondellBasell La Porte, Texas 2014 400 Williams Geismar, La 2013 275 Westlake Lake Charles, La. 2012 100 Total 6975 a Capacity figures for Dow Chemical include a new steam cracker, incremental expansions, and the restart of a cracker in Louisiana. b Capacity figures for Sasol is the upper range of an estimate. TBD=To be determined...

Read More