Musing On BASF’s Styrenics Following Nova’s Sale
Nov19

Musing On BASF’s Styrenics Following Nova’s Sale

Nova Chemicals revealed in its earnings announcement earlier this week that back on Halloween it had reached an agreement to divest its 50% stake of its Ineos Nova styrene and polystyrene joint venture to its partner. The partners haven’t settled on a price, which is subject to final determinations on debt and other liabilities. Nova’s CEO, Randy Woelfel, did promise a modest amount of cash and reduced liabilities to come out of the deal. Last month at the K show in Düsseldorf, people kept on speculating about the future of BASF styrenics business. That month, Styrolution was carved out of BASF into a €2.5 billion unit that makes styrene, polystyrene, ABS, and other styrenics. People supposed that Styron or Ineos might be interested in the business. Chris Pappas, CEO of Styron since Bain Capital bought it from Dow, is keen on growing his company through acquisition. At the same time, he seemed miffed when I asked him at K about the styrene business cycle. He doesn’t want his company pigeonholed as a styrenics company. (I don’t know how I got that impression, considering that the company, along with ChevronPhillips, owns Americas Styrenics, one of the largest polystyrene makers in the world. Oh, and the name of the company is STYRon). Anyhow, he wouldn’t comment when asked about BASF and I doubt he’s inclined to order up a bigger helping of polystyrene and ABS. He would also need to get ChevronPhillips on board. I wouldn't quite say the same for Ineos and wouldn’t be surprised if it has kicked the tires of the BASF business. The company did, after all, buy BASF’s U.S. polystyrene business back in 2007. Ineos also recently acquired the old Lanxess/Bayer/Monsanto ABS business. Now it is in full possession of the Ineos Nova joint venture. Though, another big deal is a tall order. I’m on the fence about whether either of these firms CAN buy the business for anti-trust reasons. Americas Styrenics and Ineos Nova have big market shares—first and third--in North America, respectively. Globally, the industry is still quite fragmented. It might be doable with divestitures. That said, just because styrene has been down in the dumps for a decade doesn’t mean it can’t come back. Ineos Nova has turned a profit, albeit modest, in the first nine months of the year. Perhaps years of consolidation and plant shut downs are starting to catch up to the industry. There is still a matter of the structural shift. Most of the growth is in consumer durable goods in Asia. The industry in the U.S. and Europe has been more anemic in recent years. BASF might be...

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Odds And Ends From Dow’s Dog And Pony Show
Nov16

Odds And Ends From Dow’s Dog And Pony Show

Dow’s investor day during the first week of November yielded a wealth of C&EN stories for me. I wrote a Latest News and News of the Week on the company possibly splitting up its polyolefins enterprise. I alluded to its timing on its Chinese coal to chemicals project in another News of the Week piece. And the next issue of C&EN will have a feature story on its Rohm and Haas progress. Here are some impressions and tidbits that won’t make it into the magazine but I still think are worth noting. 1)     Dow CEO Andrew N. Liveris is not without his talents. CEOs of chemical companies often bring unique skills to their jobs. Jon M. Huntsman, for instance, is one of the industry’s best negotiators. Liveris is at his best when he is moving his lips. He is a salesman of first rank. When you ask him a tough question, he acts as if he woke up that morning hoping someone would ask him that. 2)     Even Andrew Liveris can be stumped. A reporter from Michigan Public Radio asked him about hypocrisy of investing in solar cells and lithium batteries in the U.S. while pursuing coal-to-chemicals in China. Liveris wobbled to his feet muttering things about best practices, Responsible Care, and planting lots of elm trees. 3)     Liveris isn’t excited about the pace of U.S. recovery. Coming as it did one the eve of election day, Liveris fielded questions about the economy and what he thought about policy. “I have done 22 overseas trips this year and I gotta tell you, including Europe, I’m excited when I go,” he said. “When I come back here, I feel depressed. The U.S. does feel very different. The U.S. is mired in uncertainty. The lack of clarity out of our political agenda is causing business to stay on the sideline.” 4)     Liveris has been right about the polyethylene market cycle. “Industry pundit forecasts for 2011 are too barish,” he said. Supposedly, an onslaught of capacity in the Middle East was to bring a blow from the supply side to the ethylene chain. As it turns out, a strong global rebound in demand and problems bringing on the new capacity for various reasons—inability to coordinate with feedstocks, high construction costs, renewed embargo emphasis on Iran—are dampening the impact. Not to mention that North America is one of the cheaper marginal producers because of shale-based gas. 5)     No word on costs for the Aramco project. I tried to get this out of him. Back when the massive complex was planned for Ras Tanura, pundit estimates were as high as $20 billion. The partners...

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When Shareholders Attack!!!
Oct20

When Shareholders Attack!!!

These are usually the kinds of stories I don’t pay much attention to. Last week, I received a press release from Eastman announcing a few changes to its board. CEO James P. Rogers is becoming chairman at the beginning of next year, replacing former CEO J. Brian Ferguson. No surprise there. Independent director Gary E. Anderson is coming lead director of the company. Who would be better in such a position than the former CEO of Dow Corning? And, Eastman plans to “declassify” its board. That doesn’t mean that some secret directors will now be known to the public. It means that Eastman’s eleven directors are divided into three classes. Each of the classes is elected to staggered, three-year terms. The class of three directors elected in 2010 is up for re-election in 2013; the class of four directors elected in 2011 will be up for re-election in 2014; and so on. At its 2011 annual meeting, Eastman shareholders will decide whether they want to elect all of the directors each year. The move would ostensibly make the board more accountable to shareholders. It is sort of like the difference between the U.S. Senate and the U.S. House of Representatives. “The board believes these latest actions are in the best interests of Eastman and its stockholders, and are further demonstration of the company’s ongoing commitment to strong corporate governance,” the company said in a statement. The board hasn’t always thought that. At the annual meeting back in May, Eastman was fighting a proposal to declassify its board. Gerald R. Armstrong submitted the proposal. He’s a Denver retiree who owns 98 Eastman shares. He has submitted shareholder rights proposals to a number of different companies in recent years. There are many people like him nowadays. I suppose you can call it a kind of hobby. Back then, Eastman said “a classified board structure remains in the best interests of Eastman and its shareholders.” To Eastman, a classified board meant stability and a greater ability to maintain a long-term strategy in a cyclical environment. Eastman also argued that the classified board is a defense against hostile takeovers. That isn’t a silly argument. The biggest obstacle to Air Products’ bid for Airgas is Airgas’ staggered board. But never underestimate a Denver retiree. Some 41,292,223 shares voted with Mr. Armstrong, 75.24% of Eastman’s total. He won big. The proposal was adopted. So, is Eastman just doing what it is being forced to do anyway? Not quite. As Eastman spokeswoman Tracy Broadwater pointed out to me, the adopted proposal was non-binding. I suppose Eastman was just nagged into doing it,...

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Industrial Gas Companies Face Brazilian Fine Muito Grande
Sep02

Industrial Gas Companies Face Brazilian Fine Muito Grande

The Brazilian antitrust authority, Conselho Administrativo de Defesa Econômica (CADE), is levying fines totaling about $1.7 billion against Air Liquide, Air Products, Linde, Praxair’s Brazilian subsidiary White Martins. It has also implicated seven managers of those companies. CADE says it found evidence, through wire taps and searches, of an elaborate arrangement to divvy up the market by assigning customers to particular industrial gas companies. “CADE understands the actions of those companies that were investigated resulted in grave damage to industry and the public health of Brazilians,” the regulator said in a statement. (Warning: I translated that myself.) White Martins faces the largest fine, $1,273 million. Air Liquide is on the hook for $143 million. Air Products is looking at $130 million. And Linde may be responsible for $137 million. The fines made Praxair mad. “Praxair strongly believes that the allegations of anticompetitive activity against our Brazilian subsidiary are not supported by valid and sufficient evidence,” the company said in a statement. “We further believe that the fine represents a gross and arbitrary disregard of Brazilian law.” The firm promises that it will “prevail on appeal.” To Laurence Alexander, an equity analyst that covers Praxair for Jeffries & Co., the fine isn’t a shocker. “The threat of potential sanctions has been apparent since 2004, when CADE announced an investigation into alleged price fixing on public tenders as part of a broader government initiative to ‘help tame inflation’,” he wrote to clients. Alexander expects appeals to drag out five to ten...

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Is Ashland Distribution Up For Sale?
Aug23

Is Ashland Distribution Up For Sale?

Ashland Distribution divestiture talk has been heating up in recent weeks. According to a Reuters report, the company is consulting with investment bankers to sell the unit, which may fetch about $500 million. The unit has long been regarded as one that Ashland would be willing to part with. CEO Jim O’Brien has been transforming Ashland into more of a specialty chemical company. It sold off its 38% stake in Marathon Ashland Petroleum in 2005 for $3.7 billion. It divested its paving and construction unit a year later for $1.3 billion. And in 2008, it purchased Hercules for $3.3 billion. The company isn’t cash strapped, but with the new focus, businesses like distribution and Valvoline fit more uneasily in the company’s portfolio than they used to. But Valvoline generated 60% of Ashland’s operating profits in 2009 on 20% of its sales. Those are the kinds of businesses that a company seeks to duplicate with portfolio reshuffling, not sell off to buy businesses that won’t earn as much. Distribution, meanwhile generated only 12% of the company’s profits on 37% of its sales. Ashland can probably do without a business that generates a 1.7% operating profit margin. The rumor also makes sense because there is a lot of action now in the chemical distribution sector. Brenntag raised $900 million in a public offering in April. Univar wants to raise nearly that much with an upcoming IPO. Ashland has been very quiet on the matter. According to Laurence Alexander, an analyst that covers Ashland for Jeffries, O’Brien told a Jeffries investor conference in New York that the unit was a non-core business. I believe Alexander, but I really don’t know what O’Brien’s specific wording was. There was never any audio available to the public for me to confirm the statement independently. I called Jim Vitak at Ashland PR. He offered the customary response to rumors. “We don’t comment on marketplace rumors and speculation,” he said. Vitak then walked back the divestiture talk a bit. He wouldn’t confirm O’Brien’s statement before the conference. (That’s unusual. Normally companies fess up when the CEO says something in front of a room full of people or deny it if they didn’t say anything.) Vitak even argued against a divestiture. “There has been talk out there for several years off and on,” he said. He added that there may have been times when the unit “needed work” but that “work has been put in”. Ashland also, according to Vitak, reached its targeted debt levels and can attain its near term profit goals without a divestiture. One can only guess as to why the company is being so...

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Equity Analyst Sweet On Dow
Jun25

Equity Analyst Sweet On Dow

Goldman Sachs analyst Robert Koort headed to Dow Chemical’s headquarters in Midland, Michigan, to talk to top execs. He came back smitten, reiterating his buy rating on Dow’s stock. Dow has been transforming itself from a commodity chemical to a specialty chemical company. The keystone was its purchase of Rohm and Haas last year. CEO Andrew Liveris has been hammering the transformation message to shareholders. He wants his company to be a high-growth, long-term investment, not a fast-money, cyclical play for speculators once or twice a decade. He must have been pleased when he read this in Koort’s report to clients: “We believe Dow shares remain somewhat stigmatized by its commodity chemical past as many investors fail to appreciate the transformation that has occurred, resulting in a much heavier weighting towards intermediate and specialty chemicals.” Aw! It is the sort of thing that I would say to my wife over a flickering candle on a night out without the kids. Koort theorizes that Dow’s transformation will be soon be vindicated by the much anticipated downturn in the ethylene chain caused by the deluge of new Middle Eastern capacity. When that happens, Koort says, Dow’s earnings from specialties will carry the day and investors will finally get the point. Perhaps, but only if the downturn is very dramatic. It might not be. Koort said that executives hinted as much when they “laid out a case for better than expected results in the ethylene chain.” Such a case can surely be made, at least from a Dow perspective. There is a slow, albeit timid, economic recovery underway that will absorb some new capacity. This recovery might be given plenty of time. All this capacity was originally supposed to start up years ago, but regional players have had difficulty ramping up the latest generation of plants. Who’s to say all this gets straightened out in the next couple of months? As for Dow, it has a strong position in North America. There, shale gas has helped make regional industry more competitive globally. The Middle Eastern capacity will have a bigger impact on higher-cost naphtha based producers in Europe in Asia. (Dow does, however, have three ethylene crackers in Europe and a JV in Thailand). Dow also makes ethylene and polyethylene in Bahia Blanca, Argentina. The country doesn’t offer the most secure natural gas feedstock supply in the world. But with Braskem soon to command a monopoly in Brazil, South American plastics converters will cherish Dow more than ever before. Now I’m sounding romantic. But indeed, there might be silver linings for Dow either way the downturn plays...

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