Previous Page 1 | 2 | 3 Next Page

BUSINESS YEAR IN REVIEW CONT.

RESTRUCTURING MOVES. Another approach chemical companies took to improve profitability has been to restructure their businesses through mergers, acquisitions, and divestitures. Nevertheless, this year saw few "megamergers" on the scale of the Dow-Union Carbide combination or those that created new top 10 producers TotalFinaElf and Degussa in previous years.

Dow ranked this year as the largest global chemical company, with nearly $28 billion in annual chemical sales. The company focused on further integrating the Carbide operations acquired in 2001 and said it will make the significant shift of distributing its high-value, end-market-oriented growth businesses among its more traditional operations. Likewise, former top producer BASF, now number three, was actively managing its portfolio to maintain financial strength.

Number two DuPont celebrated its 200th anniversary, but not without a major overhaul that will involve shedding a historical mainstay of the company. It plans to sell or spin off its $6.5 billion fibers business by the end of 2003. It's realigning its remaining wide-ranging businesses into five growth units--coatings and white pigments, performance materials, electronics and communications, safety and protection products, and agriculture and nutrition--with a goal of 10% annual earnings-per-share growth and 6% revenue growth starting next year.

ASSETS Dow Chemical's Freeport, Texas, site is the company's largest integrated operation, producing 40 billion lb of products annually. DOW PHOTO

A major transformation is also under way at Bayer, which in fourth position is adopting a management holding company structure with four legally independent operating subsidiaries--polymers, health care, crop protection, and chemicals--by July 2003. It chose the new structure after increasing pressure from shareholders and the investment community to make changes.

For the rest of the industry, merger activity in the first six months was down compared with first-half 2001. Tight credit, the economic slowdown, low profitability, and lower valuations affected both the number and value of larger deals. As for value, large-deal transactions in the first half of 2001 totaled $16 billion, compared with $27 billion for the first half of 2001.

Transactions often involved smaller business units as companies trimmed and added pieces to reposition themselves. C&EN reported the announcement or completion of at least 100 such deals in chemicals, compared with less than half that in 2001. Areas of activity--much of it taking place in Europe--included fluoroproducts, catalysts, fibers, paint, water treatment, fertilizers, and agrochemicals.

There were a few notably large transactions. Saudi Basic Industries Corp. (SABIC) acquired DSM's petrochemicals unit for $1.8 billion and gained a European foothold. And DSM, now focused on specialties and life sciences, is buying Roche's vitamins business for about $2.2 billion.

Bayer completed its $6.6 billion purchase of Aventis CropScience in June; subsequently, it sold product lines and other assets to meet regulators' demands. It later sold its Haarmann & Reimer fragrances subsidiary for $1.7 billion to a private equity fund that will merge it with competitor Dragoco.

Solvay bought the Ausimont fluoroproducts business from Montedison for $1.2 billion and is expected to sell its 50% stake in a polyethylene venture to partner BP. Hercules, whose fortunes waned after it purchased BetzDearborn in 1998, turned around and sold the business to GE in June for $1.8 billion.

In the Asia-Pacific region, except for a financially strong Shin-Etsu, many chemical producers shuffled assets. Teijin will adopt a holding structure by April 2003, while in China Sinopec began increasing control over its separate subsidiaries. Mitsubishi announced a complex reorganization designed to take place over five years and return it to profitability. Dainippon, after a spate of acquisitions, looks to boost profits by cutting costs and focusing on core businesses.

Mitsui Chemicals and Sumitomo Chemical merged their polyolefin operations as the first step toward a full merger in 2004. Samsung is selling 50% of its South Korean petrochemical complex to Atofina for $750 million. And, in a regional industry struggling to compete internationally, India's Reliance Industries bought a 26% stake and management control in its closest rival, Indian Petrochemicals Corp., for $304 million.

LEADERS First three among Global Top 10 flip-flop
RANK			2001 CHEMICAL SALES
2001	2000	COMPANY	($ BILLIONS)
1	3	Dow Chemical	$27.8
2	2	DuPont	26.8
3	1	BASF	24.7
4	5	Bayer	18.3
5	6	TotalFinaElfa	17.5
6	4	ExxonMobil	15.9
7	8	Shell	14.3
8	7	Degussaa	11.6
9	10	BP	11.5
10	9	ICI	9.2

A few deals went through some interesting gyrations, such as the acquisition of ChemFirst by DuPont, which was on, then off, then on again as the result of an explosion at a ChemFirst plant. But the most circuitous of deals has been Degussa's potential takeover by German mining company RAG. The agreement is still contingent on E.ON, Degussa's current majority owner, getting government and court approval to buy RAG's shares in natural gas supplier Ruhrgas.

Several companies also went through transitions--Dow Corning, Penn Specialties, and Sterling Chemicals prepared to emerge from bankruptcy, whereas Borden Chemicals & Plastics was liquidated. And International Specialty Products Chairman Samuel J. Heyman moved closer to taking ISP private by signing an agreement to buy the 20% he does not already own.

On the flip side, Noveon made plans for an initial public offering and Monsanto emerged as an independent company again after Pharmacia spun it off. Eastman canceled its IPO and instead adopted a divisional structure for what were to have been separate commodity products and specialty chemicals companies.

Huntsman Corp., the largest privately held chemical producer, faced some of its greatest challenges. The company started the year in deep financial trouble but eventually resolved its issues through negotiating with lenders and restructuring its debt. Saving the company and avoiding bankruptcy came at a cost, however: job cuts, reorganization, and a loss of independence after selling nearly half the company to third-party investors.

PRODUCTION SHIFTS. Amid all the changes and challenges, chemical producers still announced nearly twice as many expansions as shutdowns in manufacturing operations. C&EN reported nearly three dozen closures or plant idlings during the past 11 months, compared with more than 60 start-ups or planned expansions. Even Huntsman opened its first "grassroots" chemical plant, a $92 million titanium dioxide facility in England.

Commodities and plastics--particularly polyethylene, polypropylene, ethylene oxide, styrene, and polystyrene--were trimmed back more than specialty chemicals, and in many cases the cutbacks came at U.S. locations. The U.S. petrochemical industry has been facing significant challenges to its competitive position compared with other regions because of overcapacity and more expensive feedstocks. Late in the year, however, BP countered the trend and announced that it would expand its Chocolate Bayou, Texas, ethylene cracker.

In contrast to the U.S. situation, petrochemical projects in Asia-Pacific and the Middle East advanced. Even in Mexico, the national oil company Pemex offered plans for an ethylene complex. It expects to involve foreign partners and begin construction in 2005. The company is also considering an ethylene derivatives plant and styrene and p-xylene capacity.

Recently, Shell Chemicals and China National Offshore Oil Corp. got the final go-ahead to build their $4.3 billion petrochemical complex in southern China. BASF was issued a business license for new tetrahydrofuran plants in the Shanghai area. The company and its partners are also planning a $1 billion polyurethane complex there. And Ellba Eastern, a joint venture of Shell and BASF, started a propylene oxide/styrene complex in Singapore.

Qatar Petroleum, Chevron Phillips Chemical, and Atofina signed joint-venture agreements for new ethylene, polyethylene, and a-olefins plants set to open in Qatar in 2007. An earlier venture between Qatar Petroleum and Chevron Phillips already has plans for ethylene, polyethylene, and 1-hexene units in the country.

However, negotiations among major Western oil and petrochemical companies and the Saudi Arabian government to develop natural gas fields in the region hit snags during 2002. Although unrelated, SABIC announced its own plans to raise its total product output 37%, to 48 million metric tons per year, by 2010. The expansion is to come via organic growth and through acquisitions.

Separately, Chevron Phillips and Saudi Industrial Investment Group are planning a $1 billion expansion of their venture's benzene, cyclohexane, styrene, and propylene complex in Al Jubail. And Japanese engineering firm Chiyoda will build a big methanol plant for a venture between Saudi and Japanese partners.

Although petrochemical projects were larger and more costly, many plant expansions and start-ups were announced in areas a bit removed from the basic petrochemical commodities. Industrial gases fared well, with several major projects planned that will feed expanding chemicals production. Other areas of activity included specialty plastics and intermediates, catalysts, and electronics-related chemicals such as nitrogen trifluoride.

FINE CHEMICALS GROW. In general, the fine chemicals business was marked by asset shifts, alliances, new ventures, and capacity changes. However, different niches saw different approaches to growth. For example, fine chemicals producers were still sorting out their assets and business plans because of tough market conditions, whereas bioprocessors typically were increasing capacity to meet growing demand.

ISP, wanting to sell some assets, eventually sold its Israel-based FineTech drug development business to Pharmaceutical Resources, but ended up keeping a Columbus, Ohio, plant. Meanwhile, Eastman decided to shut its Hong Kong plant when a buyer couldn't be found, and Lonza decided to close its Los Angeles plant.

Industry competition also led to other strategic changes. Dow continued to carve out a position in the active pharmaceutical ingredients (API) market by adding a range of capabilities. To focus on different market segments, DSM split its fine chemicals operations into two. Mitsubishi made plans to spin off part of its API business and merge it with another to take greater advantage of customers looking to outsource production.

It may not be until 2004 or later that economic recovery takes hold.

A few fine chemicals expansions were announced: Lonza, Bayer, DSM, and Albany Molecular Research all boosted kilo-scale services to supply APIs for preclinical and early-clinical drug development. Solutia started fast-track synthesis and pharmaceutical development services and began construction on a new high-potency API plant. Organichem will build a high-potency unit as well and started up a large-scale API unit late in the year.

Biopharmaceutical manufacturers--including Lonza, DSM, Avecia, Cambrex, and Genencor--added production capacity. Cambrex announced a series of expansions this past summer that should start to come onstream within a year. Avecia completed expansion of a new DNA medicines facility and began construction of a $100 million microbial fermentation unit in England. And Lonza is investing $225 million in both microbial and mammalian cell-based production.

Genencor, already a leading industrial enzyme producer, made known its plans to enter the pharmaceutical protein business. It will build a $10 million facility to open in 2004 for clinical-scale production. Overall, the company intends to spend up to $50 million over five years, with the scope of its investment dependent on the success of its own drug development program.

Genencor also gained two new alliance partners--Seattle Genetics and Johns Hopkins University School of Medicine--in cancer and vaccine therapeutics, respectively. Albany Molecular Research struck drug discovery deals with Merck and with biopharmaceutical developer Genzyme. Microbia will work with Teva Pharmaceutical to speed up the process development cycle for microbial-derived pharmaceuticals and fine chemicals.

Enzymes producer Novozymes has been using acquisitions to build a microorganisms business large enough to invest in major research. During 2002, it spent about $10 million to purchase BioGaia Fermentation, which produces and sells proteins for the drug industry. Shortly thereafter, it bought microorganism and enzyme producer George A. Jeffreys & Co. and microorganism developer InterBio.

Although many small technology companies struck deals with large drug and chemical producers, Diversa clearly led in adding partners. Early in the year, it announced separate biocatalysis development deals with BASF, Degussa, and Givaudan. These were followed midyear by a multiyear agreement to help DuPont develop new routes for chemical production. It then ended the year with a major plant genomics collaboration with Syngenta.

Top

Previous Page 1 | 2 | 3 Next Page