CHEMICAL UPDATE
FEBRUARY 2015
McIlvaine Company
Kemira Reports Growth,
Improved Profitability
Dow Corning Profits Up
for the Year
BASF Plans Worldwide
Expansion of PVP Production
MeadWestvaco to Separate
Specialty Chemicals Business
Tronox to Acquire FMC’s
Soda Ash Business for $1.64 billion
Kemira Acquires
AkzoNobel's Paper Chemical Business
PPG to Acquire Majority
Interest in French Aerospace and Automotive Sealants Business
Solvay Completes
Purchase of Ryton PPS for $220 million
Lubrizol Completes
Acquisition of Weatherford Oilfield Business
Lubrizol Acquires
Warwick Chemicals
US speciality chemical manufacturer WR Grace, which emerged
from bankruptcy almost exactly a year ago, intends to split into two companies.
The split should allow the two segments to allocate investment capital more
effectively.
The first new offshoot, temporarily dubbed ‘New Grace’,
will focus on process catalysts and speciality silica products. It is expected
to generate about $1.8 billion in annual sales, with an approximate 70:30 split
between catalyst technologies and materials technologies. The second daughter
company, ‘New GCP’, will focus on construction products – like dispersants that
improve concrete flow, placement and strength – as well as speciality building
materials and packaging technology. New GCP is expected to generate $1.5 billion
in annual sales, with construction products making up about 75%, and Grace’s
Darex packaging business the other 25%.
Kemira (Helsinki) recently announced results for
fourth-quarter and full-year 2014. The company says that revenue remained stable
at €547.1 million ($619.4 million) in the quarter compared with €545.2 million
in the year-ago period. Operating EBITDA increased by 13% year-on-year (YOY), to
€65.3 million, compared with €58.0 million in fourth-quarter 2013, with an
improved margin of 12%. The main reason for the improved operating EBITDA was
organic revenue growth, driven by higher sales volumes and sales prices.
The company's financial targets for 2017 are:
·
revenue EUR 2.7 billion
·
operative EBITDA-% of revenue 15%
·
gearing level <60%.
Kemira expects its capital expenditure-to-sales ratio to
increase in the next few years from the 2014 level of 6.3%. In addition, Kemira
expects its medium-term operative tax rate to be in the range of 22%-25%. This
rate excludes non-recurring items.
The basis for growth
is the expanding market for chemicals and Kemira's expertise that helps
customers in water intensive industries to increase their water, energy and raw
material efficiency. The need to increase operational efficiency in our customer
industries creates opportunities for Kemira to develop new products and services
for both current and new customers. Research and Development is a critical
enabler of organic growth for Kemira, providing differentiation capabilities in
its relevant markets. Kemira will invest in innovation, technical expertise, and
competencies in its selected focus areas.
Outlook for 2015
In 2015, Kemira will focus on profitable growth both
organically and inorganically. Kemira's revenue in 2015 is expected to increase
compared to 2014 and operative EBITDA in 2015 to remain approximately at the
same level or increase compared to 2014. The outlook excludes the impact of
AkzoNobel paper chemical business (acquisition expected to close in the first
quarter of 2015). At closing, AkzoNobel paper chemical business is expected to
add revenue of more than EUR 200 million on an annualized basis.
Dow Corning Corp. reported increased profits and sales for
2014, with its adjusted earnings up 72 percent for the year.
The corporation said it earned $513 million last year, with
sales of $6.22 billion and an adjusted profit of $522 million.
In 2013, the company made $376 million, or $304 million on an adjusted
basis, with sales of $5.71 billion.
“In 2014, Dow Corning demonstrated why we lead the
silicon-materials industry, as we returned to a trajectory of sales and profit
growth despite operating in an oversupplied industry and a significantly
volatile marketplace,” said J. Donald Sheets, Dow Corning executive vice
president and chief financial officer.
“Dow Corning continues to lead the industry in the
development of new formulations and applications for silicon-based
technologies,” Sheets said. “This commitment to long-term growth, as well as our
diligence in maintaining and enhancing our cost-leadership, has positioned us
for continued growth and success.”
Sheets said Hemlock Semiconductor Group’s polysilicon
business continued to have a strong performance in 2014, but there has been a
lack of progress in resolving trade disputes in the solar industry.
Dow Corning also reported its fourth quarter earnings were
$37.2 million on sales of $1.68 billion. When adjusted to exclude certain
factors, the corporation earned $204.6 million in the quarter. This compares
with the fourth quarter of 2013, which saw a profit of $110 million, or $103
million on an adjusted basis, with sales of $1.59 billion.
“The fourth quarter decision to permanently close Hemlock
Semiconductor’s Clarksville site, while difficult, will ultimately strengthen
Dow Corning’s financial performance by eliminating the significant costs
associated with maintaining the site,” Sheets said.
The closure led to an adjustment of the company’s earnings
for the fourth quarter. Also causing an adjustment was a reduction in the Dow
Corning’s implant liability estimate.
Sheets said the reduction was made “based on evidence that
the total funding required to fund its breast implant settlement program will be
substantially lower than the full funding cap set forth in the program. This
revised liability reflects today’s best estimate of Dow Corning’s remaining
funding obligations.”
BASF plans to invest up to €56 million in the expansion of
its Polyvinylpyrrolidone (PVP) value chain over the next four years. PVP is a
polymer which is used in diverse industries, for example the pharmaceutical or
the personal and home care sector, mainly due to its binding properties. Through
revamping existing plants in Ludwigshafen, Germany and Geismar, Louisiana and
introducing the PVP technology at BASF’s site in Shanghai, China, the company
will increase its global PVP production capacities by up to 6,000 metric tons.
All plants will operate under the highest possible quality standards (current
Good Manufacturing Practice). BASF is the inventor and one of the market leaders
for PVP.
“Our global production network and technology leadership
enable us to obtain the highest levels of supply reliability and quality for our
customers in multiple industries,” said Michael Heinz, Member of the Board of
Executive Directors, BASF SE. “With this investment we are actively
participating in the strongly growing PVP market, especially within the
pharmaceutical industry,” added Saori Dubourg, President of BASF’s Nutrition &
Health division.
The polymer PVP can be used in a broad range of
applications due to its varied features: It is water soluble, but can also
absorb large quantities of water; it is non-irritant to the skin and does not
pose a health hazard; it is temperature-resistant, pH-stable, non-ionic and
colorless. A majority of BASF’s PVP capacities are destined for the
pharmaceutical industry. Under the name Kollidon®, PVP is mainly used as an
excipient in tablets with binding and disintegrant functionality. As a binder,
it enables the individual active ingredients of a tablet to form a homogenous
entity and as a disintegrant it ensures that the tablets break up in liquid and
release the active ingredient quickly. The excipient can furthermore be deployed
as lyophilisation agent, suspension stabilizer and thickener.
In addition to the pharmaceutical industry, PVP-based
products are used in the cosmetic, detergent and food sector as well as for
technical applications. Luviskol® types are key components in hair styling
products to give, for example, styling sprays and gels their setting properties.
Sokalan® types are detergent additives, which disperse particulate soil removed
from the fibers during the washing process and prevent it from being redeposited
on clean fabrics. With regard to the food sector, PVP can be used for the
filtration of beer and the treatment of wine (Divergan®). Luvitec® plays an
essential role, for example, in the production of membranes for micro- and
ultra-filtration, which are employed for dialysis and water filtration. It can
also be utilized for special adhesives.
MeadWestvaco Corporation (NYSE: MWV), a global leader in
packaging and packaging solutions, announced recently that its board of
directors has approved a plan to fully separate its Specialty Chemicals business
from the rest of the company. The separation is expected to be executed by means
of a tax-free spinoff of the Specialty Chemicals business to MWV shareholders,
resulting in two independent, publicly traded companies. The spinoff is expected
to be completed by the end of 2015. MWV remains open to other value-creating
alternatives for the Specialty Chemicals business throughout this process.
“Following a thorough strategic review process, MWV’s board
and leadership team determined that a tax-free spinoff of Specialty Chemicals
presents the best opportunity to create the greatest value for our
shareholders,” said John A. Luke Jr., chairman and chief executive officer, MWV.
“The separation of Specialty Chemicals will establish two strong companies that
are better positioned to compete and profitably grow in their targeted markets.
This action continues our strong record of returning value to our shareholders,
which has exceeded $4 billion over the last 10 years.”
Mr. Luke continued: “This is an opportunity we have created
by executing on a deliberate strategy of building MWV's businesses into
packaging and specialty chemicals leaders globally. We are in a strong position
to take this next step to maximize value for our shareholders. Our strong
commercial progress and improved execution have put our packaging business on a
sustainable path toward market-leading margins and growing cash returns. The
separation of our Specialty Chemicals business, along with the organizational
redesign work we are undertaking, reflects the strong commitment of our
management team and board of directors to creating value for our shareholders
and establishing a business model that will significantly improve the
profitability and cash flow profile of our packaging business.”
MWV expects to receive cash from the spinoff that will be
used primarily to pay down debt to maintain MWV’s investment grade credit
rating. MWV expects to continue to pay a strong dividend, with the final rate to
be determined post-separation. The company also will continue to look for
opportunities to return capital to shareholders.
The Specialty Chemicals business will be well positioned to
accelerate profitable growth in its megatrend aligned markets of energy,
infrastructure and transportation. The business is a leading provider of
performance chemicals used in printing inks, asphalt paving and adhesives, as
well as in the agricultural, paper and petroleum industries. The business also
produces activated carbon products used in gas vapor emission control systems
for automobiles and trucks, as well as applications for air, water and food
purification.
The Specialty Chemicals business will have greater ability
to grow and expand its leadership positions in attractive global markets. The
business is expected to extend its ‘best-in-class’ financial performance record
with the appropriate capital structure to allow the new company to accelerate
the pursuit of attractive profitable growth opportunities. As a stand-alone
chemicals company with a strong margin profile, Specialty Chemicals will
continue to be a leader among its peers.
Bank of America Merrill Lynch and Goldman, Sachs & Co. are
serving as financial advisers to MeadWestvaco, and Wachtell, Lipton, Rosen &
Katz is serving as legal adviser.
Tronox has reached a deal to acquire FMC’s alkali
chemicals, or soda ash, business for $1.64 billion. The transaction is expected
to close in the first quarter.
FMC, in September 2014, announced plans to acquire crop
protection chemicals maker Cheminova (Harboøre, Denmark) for about $1.80 billion
and said it would divest soda ash to reduce debt related to the acquisition.
FMC is the largest global producer of natural soda ash and
has mining and processing facilities located at Green River, WY. Tronox
estimates that the business will have contributed about $800.0 million of
revenue for 2014.
The purchase price will be funded with about $1.00 billion
in cash and about $600.0 million of new debt pursuant to signed commitments
received from UBS Investment Bank, Credit Suisse, and RBC Capital Markets,
Tronox says. The transaction is expected to be significantly accretive to
Tronox’s Ebitda, free cash flow, and earnings upon closing.
“With its industry-leading position in markets
complementary to ours, alkali chemicals brings strong operational and financial
performance,” says Tom Casey, chairman and CEO of Tronox. FMC’s soda ash has
consistently delivered Ebitda margins in excess of 20% and converted
approximately 75% of its Ebitda to free cash flow, Tronox says. The acquisition
will boost Tronox sales to about $2.60 billion/year.
Kemira has reached an agreement to acquire AkzoNobel's
global paper chemicals business. The parties will also enter into a distribution
agreement for AkzoNobel's colloidal silica business for retention and drainage
applications for the paper industry. The closing of the intended transaction is
expected in the first quarter of 2015 and is subject to customary closing
conditions, including completion of employee consultation proceedings and
approvals of competition authorities in certain countries. The Enterprise Value
of the transaction for AkzoNobel's paper chemicals business is EUR 153 million.
AkzoNobel's paper chemicals business includes products for
retention and sizing, as well as other paper chemicals, including wet strength
and coating products. In 2013, revenues of the purchased paper chemicals
business were EUR 243 million (EMEA 40%, Americas 30% and APAC 30%). Over 50% of
the revenues were related to the packaging board grades. Operative EBITDA of the
purchased business in 2013 was EUR 23 million. Kemira expects more than EUR 15
million of annual synergies by the end of 2016 with the acquisition.
"Kemira is the global leader in the development,
application expertise and supply of chemicals for the pulp and paper industry.
This acquisition is a major step in implementing our growth strategy and it
significantly enhances our position, especially in the packaging and board
industry and strengthens our presence in the Asia-Pacific region. This also
demonstrates our commitment to the industry by diversifying our offering to our
customers around the world. AkzoNobel's paper chemicals are a great fit for
Kemira, and we expect to achieve significant technological and financial
business synergies," says Jari Rosendal, Kemira's President and CEO.
"We are very pleased to announce this preliminary
agreement. Kemira is a well-established player in this market and with the sale
of our Paper Chemical business we are following through with our strategy to
focus on leading position," commented AkzoNobel CEO Ton Büchner. "This
divestment enables our Pulp and Performance Chemicals business to focus on its
core activities."
PPG Industries Inc., the Pittsburgh-based maker of coatings
and specialty materials, recently announced an offer to acquire a majority
interest in the aerospace and automotive sealants businesses of Le Joint
Francais. Part of the Hutchinson Group, LJF is headquartered in France and has
been a long-term licensee of PPG's aerospace sealant technology.
This is PPG’s second acquisition of a French company in
less than two months.
"This venture is a natural progression for the two
companies, as LJF has been a licensee of PPG (NYSE: PPG) technology for more
than 60 years. This would allow us to serve our aerospace and automotive
customers with greater geographic reach and with a wider array of automotive
products," said Michael McGarry, PPG chief operating officer, in a statement.
In December, PPG entered into exclusive negotiations with
the Axson Group to acquire Revocoat, a global supplier of sealants, adhesives
and damper products for the automotive industry that employs more than 500
people. That deal is expected to close in the first quarter of 2015.
The latest French deal calls for LJF's aerospace and
automotive sealants businesses to be spun off to form a new, separate entity, of
which PPG would be the majority owner. PPG anticipates closing that transaction
in the second half of 2015, after securing necessary regulatory approvals.
LJF's aerospace and automotive sealants businesses employ
more than 200 people in Bezons, France, where PPG said the new entity would
continue operations.
Chevron Phillips Chemical Co. recently finalized the sale
of its Ryton polyphenylene sulfide business to Solvay SA.
The deal, first announced in September, includes the sale
of the Ryton PPS unit in Borger, Texas, the pilot plant along with PPS research
and development in Bartlesville, Okla., a compounding plant in Kallo-Beveren,
Belgium, and other assets.
The compounding plant in La Porte, Texas, will remain part
of Chevron Phillips, the company said in a Jan. 5 announcement.
Employees moved to Solvay as part of the deal or were
offered positions elsewhere in Chevron Phillips, based in The Woodlands, Texas.
Solvay paid $220 million for the business.
Ryton is used extensively in the auto industry, including
in pumps, electronic parts and parts for heating and thermal management.
The Lubrizol Corporation announces it has completed the
acquisition in the United States and Canada of Weatherford International’s
global oilfield chemicals business, known as Engineered Chemistry and its United
States drilling fluids business, known as Integrity Industries. Closings in the
rest of the world will occur throughout 2015. The transaction was announced on
December 1, 2014.
With the close of the transaction, Engineered Chemistry and
Integrity Industries, along with Lubrizol’s legacy energy and water business and
Berkshire Hathaway portfolio company, Lubrizol Specialty Products, Inc., will
form Lubrizol Oilfield Solutions, a new business segment for the company.
Lubrizol Oilfield Solutions joins the company’s other business segments,
Lubrizol Additives and Lubrizol Advanced Materials. Within this new segment,
Engineered Chemistry and Integrity Industries will operate substantially as they
do now.
The Lubrizol Corporation announces it has completed the
acquisition of Warwick Chemicals, a leading global developer, producer and
supplier of stain removal technology with hygiene benefits. The transaction was
announced on November 24, 2014.
The addition of Warwick Chemicals complements Lubrizol's
existing home care product line, strengthening its strategy of providing
high-value technology solutions to its global customers.
With the close of the transaction, Warwick Chemicals is now
part of Lubrizol Advanced Materials, reporting into Lubrizol's personal and home
care business and retaining the Warwick Chemicals company name.
The Lubrizol Corporation, a Berkshire Hathaway company,
produces and supplies technologies to customers in the global transportation,
industrial and consumer markets. These technologies include lubricant additives
for engine oils, driveline and other transportation-related fluids and
industrial lubricants, as well as additives for gasoline and diesel fuel. In
addition, Lubrizol makes ingredients and additives for home care and personal
care products and pharmaceuticals, and specialty materials, including plastics
technology and performance coatings in the form of specialty resins and
additives.
With headquarters in Wickliffe, Ohio, Lubrizol owns and
operates manufacturing facilities in 17 countries, as well as sales and
technical offices around the world. Founded in 1928, Lubrizol has approximately
8,000 employees worldwide. Revenues for 2013 were $6.4 billion.
McIlvaine Company
Northfield, IL 60093-2743
Tel: 847-784-0012; Fax: 847-784-0061
E-mail: editor@mcilvainecompany.com
Website: www.mcilvainecompany.com