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
Eastman Buying Solutia
Jan27

Eastman Buying Solutia

I arrive the office this morning, bright and early, as usual. “Your Top 50 U.S. chemical company survey will get smaller by one company,” C&EN assistant managing editor, Mike McCoy, said. “Do you want me to guess?” I said. “Solutia is one of the firms.” “That is the company being acquired,” I reply. “That’s right.” “PPG is buying them,” I guessed. “No, but that’s an interesting guess,” Mike says. It was a very good guess. “Ashland?” “No, too soon.” Ashland, Mike realized, just bought ISP. “Eastman!” “Very good!” Mike exclaimed, very impressed. Indeed, Eastman is buying Solutia in a $4.7 billion transaction. The relevant details are in my Latest News story here. I have a few observations: 1) It seems like a nice, square deal for all parties. My calculations put the cash and stock portion of the deal at $3,357 million and the debt at $1,377 million, combining for the ~$4.7 billion price. The cash and stock represent a 13.8x multiple over adjusted earnings of $243 million. 2) Since declaring bankruptcy in 2003, Solutia has honed its business where it has a strong position such as hydraulic fluids and polyvinyl butyral (PVB) interlayers for windshields. The cash cow of the portfolio is the technical specialties business, which generated a 38% EBITDA margin. It makes the hydraulic fluids, heat transfer fluids, and insoluble sulfur, used to vulcanize rubber. 3) Integration? PVB is made by reacting polyvinyl alcohol, which Solutia makes, with n-butyraldehyde. It just so happens that Eastman is America’s largest producer of n-butyraldehyde, which it uses to make oxo derivatives like 2-ethylhexanol. 4) Solutia is an ex-Monsanto business. Sterling, which Eastman acquired last year, is a former Monsanto unit. Spooky? Yes. Coincidence?...

Read More
FutureFuel To Get Listing on NYSE
Mar10

FutureFuel To Get Listing on NYSE

FutureFuel says it is going to start trading on the New York Stock Exchange on or about March 23 under the ticker symbol "FF". The company had been trading over the counter. Who is FutureFuel? Glad you asked. It is the former Batesville, Ark., complex of Eastman Chemical. Originally, it was a photographic chemical facility for Eastman Kodak. Then it evolved into a custom chemical and performance chemical plant. Its most notable contract was making the bleach activator nonanoyloxybenzenesulfonate (NOBS) for P&G. Eastman started to convert the facility into making biofuels such as biodiesel, ethanol, and solid lignin biomass. Private investors under the name Viceroy Acquisition bought the plant from Eastman for more than $75 million. Viceroy had raised about $160 million on the London Stock Exchange’s AIM market to break into the U.S. biofuels sector. (Back in those days, people would throw money at you at the mere mention of biofuels.) But FutureFuels, despite its name, is still very much a chemical company. During the first nine months of 2010 (Q4’s aren’t out yet) it generated $165.6 million in revenues. Some $131.1 million came from chemicals; $34.5 million were in biofuels. Its gross were $31.2 million from chemicals and a loss of $5.1 million in biofuels. (I’m guessing it will remain a chemical company.) By the way, that contract with P&G is alive and well. In fact, FutureFuel revenues from this contract alone in 2009 were $73.5 million. That represented about 37% of ALL of its revenues that year. Another $31.6 million in sales came from making a proprietary herbicide for Arysta...

Read More
The Evolving Polyethylene Terephthalate (PET) Marketplace
Jan26

The Evolving Polyethylene Terephthalate (PET) Marketplace

I worked this up for an upcoming article on the PET resin industry. After being battered for the better part of the last decade, the highly fragmented industry is consolidating. DAK Americas, which is owned by Mexico’s Alfa Group, is buying the remnants of Eastman’s business. Indorama, of Thailand, is buying Invista. (Historically that last business was KoSa. Before that it was Hoechst’s polyester business.) 2010 2011 Eastman 15 Indorama 33 Indorama 14 Wellman 8 Wellman 9 DAK 29 DAK 15 M&G 18 M&G 19 Nan Ya 9 Nan Ya 9 Selenis 3 Invista 19 Total 10.0 billion lb. Total 10.4 billion lb These figures are capacity numbers for the NAFTA region. And it is PET packaging resin only, not fiber. I compiled it based on company documents and interviews, except in the case of Selenis, which comes from published reports. Selenis is a newcomer to the industry. The company is converting a shuttered polytrimethylene terephthalate plant near Montreal that Shell Chemical built with SGF earlier last decade. The project might be a little bit of a question mark given how big the largest players are getting. From what I understand--Selenis officials aren't returning my calls--the plant has been delayed. Interestingly, when I asked Indorama if they are planning on closing any capacity. They told me "absolutely not." They are also keen on expanding in Mexico. UPDATE: Related to PET, sort of.  Eastman Kodak's Q4 profit dropped 95%. The market capitalization of Eastman Chemical is now more than 6X that of its former...

Read More
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,...

Read More