BASF And Total Take Over Sabina
Aug03

BASF And Total Take Over Sabina

Here’s a development I find interesting. BASF and Total Petrochemicals are taking over Shell Chemicals’ interest in their Sabina joint venture. Sabina started up in 2004 in Port Arthur, Texas, to extract butadiene from C4 streams. Two-thirds of these streams came from Shell’s Deer Park cracker. The rest was supplied by a naphtha-based cracker Total (then briefly known as Atofina) and BASF had just completed at the time. It started up with a capacity for 400,000 metric tons of butadiene. Sabina also alkylates iso-butene into octane for gasoline blends. The n-butene cut goes to a metathesis unit, giving the cracker venture greater propylene yield. Shell owned 60% of the venture, BASF had a 24% stake, and Total had a 16% interest. With the change in ownership, Sabina will have a 60% BASF and 40% Total ownership, like their cracker venture. Shell hasn’t put out a press release on this. When I asked the company why it was exiting the venture, they sent me this statement: “Shell has signed an agreement to exit the Sabina venture effective August 1, 2011. This action fits well with the Shell strategy to streamline and concentrate its downstream portfolio.  Shell plans to continue supplying our customers with product and accepting supply from our feedstock suppliers without interruption.” The important context here is that like many other chemical makers, Shell has been moving to lighter feedstocks because of ethane from natural gas shale. Shell has even undertaken capital projects in Deer Park and Norco, La., to enable it to crack lighter feeds. As a result, Shell probably has less C4’s in its system now and likely can’t or doesn’t want to be tied up with the commitments to Sabina. If that is the case, I wonder if Sabina is now struggling to find...

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Middle East Revolts and Chemicals Part II
Mar03

Middle East Revolts and Chemicals Part II

Here’s an interesting statistic, traffic through the Suez Canal increased in January 2011 versus the same month in 2010. Some 1,485 vessels passed through the canal in January 2010, versus 1,418 the year before. Tonnage increased from 66,440 in 2010 to 75,501. However, this might not be all that telling. The protests began on January 25. So the statistics only cover the first, and least intense, week of the uprising. The Suez Canal Authority hasn’t yet come out with statistics for February, which would be more instructive. (BTW, the Suez Canal Authority keeps annual statistics on the kinds of cargo passing through the canal, including chemicals.) Also, the image was taken from marinetraffic.com, where you can track traffic headed to and from the canal on the Mediterranean, or anywhere else in the world for that matter. Looks like the transponders are off during the passage itself. There is another consequence of the unrest of the Middle East that I overlooked in the last post. That of BASF. Melody Voith, who is writing about BASF’s earnings for the next issue of C&EN, points out that analysts were quite interested in the Libyan operations of BASF’s Wintershall oil and gas unit. Wintershall shuttered production in Libya last week. The German military airlifted 21 German employees out of the country, leaving 368 local staff to, in a very close to literal sense, mind the fort. According Goldman Sachs analyst Richard Logan, the operations produce about 100,000 barrels per day. However, despite those high numbers, he and BASF don’t see a substantial impact to BASF earnings. A high, 93%, tax rate and the Gazprom minority stake in the operations whittle €1.3 billion in EBIT down to only €70 million in net income. “With respect to Libya,” chairman Jürgen Hambrecht said in a press release “BASF hopes that the situation will calm down soon.” Good luck with...

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Megatrend Madness
Jan12

Megatrend Madness

A big part of what I do for a living is attending press conferences and listening to conference calls where top executives from leading chemical firms talk about their companies. Oftentimes, they invoke “megatrends” to justify what they are doing or otherwise convince shareholders that they are on the ball. All the leading chemical companies have them. They are the mission statements of the post-Friedman, Thomas not Milton, flat, hot world. Here are a few of the most prominent examples: DuPont: Increasing Food Production, Decreasing Dependence on Fossil Fuels, Protecting People and the Environment, and Growth in Emerging Markets. BASF: Growing and Aging Population, Urbanization, Energy Demand and Climate Protection, and Mobility and Communication Dow: Energy, Consumerism, Transportation Infrastructure, and Health And Nutrition. When these companies and others talk about Megatrends, I either put down my pen or start doodling with it. I perk up again when companies get down to brass tacks. Megatrends strike me as too obvious to be a serious tool to justifying anything. For example, DuPont recently invoked the food production and fossil fuel trends when it announced its purchase of Danisco. Fine, the company makes food additives and has technology that can be applied to cellulosic biofuels. The problem is that those megatrends tell me nothing about whether it will be a good acquisition or not. That depends on the specific value propositions of the Dansico businesses, and its pipeline, to specific markets as well as new opportunities that wouldn’t be possible without a DuPont/Danisco combination. DuPont might have used the same megatrends to argue for the purchase of Clorox’s Kingsford Charcoal unit—charcoal is made of wood and is used to cook food. (Heck, Kingford’s charcoal briquettes were originally made from the wooden remnants of Ford Model T production.) Dow’s megatrends are the most egregious because they are so vague. Energy and Nutrition have been “megatrends” ever since the first caveperson roasted the first boar over the first fire. And Dow’s megatrends can justify ANYTHING. Can Dow go out and buy Brown Forman? Sure. They can invoke consumerism: A growing and increasingly wealthy population will demand more Jack Daniel’s and Southern Comfort. There might even be a biofuel connection because of Brown Forman’s ethanol expertise. BASF’s are the most specific. Though, urbanization has been with us for quite a long time as well. In the interest of not wanting to sound overly shrill, I don’t want to accuse these firms and other companies of being insincere. I do think they actually believe in this megatrend stuff. And nobody likes to make mistakes with hundreds of millions of dollars. When companies make investments, I do...

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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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Lubrizol CEO Admits He Scared ‘The Bejeebers’ Out Of Analysts
Aug03

Lubrizol CEO Admits He Scared ‘The Bejeebers’ Out Of Analysts

And the award for outstanding achievement in the field of leveling with analysts goes to James L. Hambrick, CEO of Lubrizol. During his prepared remarks during Lubrizol's Q2 earnings conference call, he told analysts that he didn’t want to talk about his company’s bidding war with BASF to buy Cognis by, well, saying much more about the failed takeover attempt than any other CEO would spend talking about a failed takeover attempt: “I have nothing I can tell you in terms of portfolio enhancements. We're going to continue to work that space. Some of you may want to talk about the Cognis acquisition, I don't intend to spend any time on that this morning. We were not successful, it was a large deal, I know it scared the bejeebers out of some of you, but it's not very often that you could put together a bolt-on in personal care, in coatings, and in the industrial space. The only thing that was really wrong with it was it all came at us at one time and we weren't successful.” BASF inked a deal in late June buy Cognis for $3.8 billion. There were many leaks about the negotiation process before the deal was announced. Lubrizol supposedly had a bigger offer on the table, but the financing wasn’t as ironclad as BASF’s. As far as the scaring the “bejeebers” out of analysts goes, Lubrizol only has about $4.8 billion in revenues in 2009, making a $4 billion acquisition rather steep. Big acquisitions normally transform companies, but often into debtors-in-possession. However, Lubrizol did rack up $500 million in earnings from those revenues, not a bad record in a recessionary year. And let us not forget that when Lubrizol bought Noveon in 2004, it had about $2 billion in sales while Noveon had about $1.2 billion. Hambrick says Lubrizol isn’t out of the hunt: “We'll move on, we have other assets that we're looking at, other opportunities. I'm working at it full-time even as during the course of this week and will continue to work that. Our first priority is to invest in the business to sustain it and keep it moving. Our second priority really is what I would call the duet of portfolio enhancements and share repurchases. It's the proper use of our cash balance for the benefit of shareholders.” Odds are he won’t find a purchase that will push all of Lubrizol’s buttons like Cognis would...

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