Clariant On Track For 1600 Layoffs
Weekly Chemical News Roundup
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Pennsylvania Passes Law Concerning Advanced Recycling
John Thayer wrote in the Pittsburgh Post Gazette that Pennsylvania has passed new legislation concerned advanced recycling of plastics. The law defines what advanced recycling technologies are for Pennsylvania and what those technologies can produce and what sorts of municipal waste can be used with these new processes. The recently passed bill is an amendment to P.L. 380, No.97—the law governing how Pennsylvania handles solid waste that was passed in 1980. The bill further grants additional powers and duties of the Environmental Quality Board to oversee the regulation of this new method of plastic recycling and the products of those recycling processes. You can read the full amendment that was passed here. It should be noted that John Thayer is currently employed by Nova Chemicals, but will be going to the American Chemistry Council to head up their plastics division.
This may seem trivial and/or obvious to the readers here, but it is the first step in getting chemical recycling done at scale is generating a regulatory framework for chemical recycling of spent plastics. Having a regulatory framework to build an industry off of is a first step I never thought about, but now that I do see one specific issue at a federal level that I am questioning.
In the event that advanced recycling capacity expands significantly the liquid matter that is produced will likely be a mixture of different hydrocarbons both aliphatic and maybe aromatic and may not fall under the classifications of products coming out of an oil refinery. I think these new recycling products will need a toxic substances and controls act (TSCA) registration either as intermediates or as new chemical products. I’ll try and get confirmation on if that actually needs to happen. I’ve specifically followed up with John Thayer.
SK Capital Invests in a Regional Chemicals Distributor
Regional distributors seem to be making news more often these days especially as companies that were once distributors appear to be transforming into chemical companies themselves (Brenntag, I’m looking at you) by just sheer scale and touching so many different businesses. The private capital firm SK Capital has invested in Tilley Chemical Company, a regional chemical distributor in the mid-Atlantic region of the US. From the press release:
In addition to its logistical infrastructure, Tilley retains the ability to blend dry and liquid products, provide full-service packaging and repackaging and offer an extensive array of on-site storage capabilities to support just-in-time deliveries to its customers.
Blending of products could mean doing some sort of final formulation for the end user or diluting concentrated products with things like water or other fillers to modify the end properties. Repackaging is also of interest because coming out of a chemical plant and packaging into anything smaller than 55 gallon drums or isolated bulk containers is typically asking way too much of the operators.
Sometimes chemical products go out to customers in the form of a 1 quart, 1 gallon, 2 gallon, or five gallon package size. This is where someone like Tilley could make quite a bit of money. It isn’t easy to find a distributor willing to do repacks and finding someone to do repacks into smaller volumes is even better. I’m going to keep Tilley in mind for my own products in the event they need repackaging from a bulk tank truck to something smaller.
One question I ask myself is why is SK Capital investing in distribution? The classic use of distributors to my knowledge is to service smaller customers that might need a few drums/month or maybe an IBC or two a month. These smaller customers are hard to deal with if you are a lean market vertical for a big company.
A lean market vertical might be a few chemists, an account manager or two, maybe someone in tech service, and some marketing support. Teams like this can easily handle a handful of customers worth a few hundred million dollars, but every small volume customer? That is where distributors take over. Distributors allow bigger companies to service all of the smaller players (at a slight mark-up of course).
I think SK Capital sees distribution and supply chain logistics in chemicals to be more difficult than most might believe and that eventually if you control the majority of distribution then you have a significant amount of control and value. I think about Amazon’s move into distribution and how they in sense also act as a distributor for third party sellers (and as a market).
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Clariant is On Track For Layoffs and In Talks to Sell Pigments Business after selling Master Batching Business
Sotirios Frantzanas reported in ChemWeek that Clariant is on track to do 600 layoffs by the end of 2021 with the plans being finalized in the next months. Clariant is also expected to do a reorganization under their new CEO Conrad Keijzer, a former executive from AkzoNobel, that will result in an additional 1000 layoffs sometime in 2022.
The sale of Clariant’s master batching business will be to PolyOne for about $1.6 billion dollars, which is about 12x EBITDA and was announced in mid December. The sale of the pigments business has relaunched as reported by Arno Schuetze, John Miller for Reuters. From the press release detailing the sale of the master batching business:
“This announcement is a significant milestone on our path to focussing on businesses with above-market growth, higher profitability and stronger cash generation. After the successful divestment of Healthcare Packaging in October 2019 the agreement to sell Masterbatches is an important step in delivering on our strategy defined in 2015 to concentrate on our three core Business Areas Care Chemicals, Catalysis and Natural Resources”, said Hariolf Kottmann, Executive Chairman of Clariant. “As announced, we are confident that we will execute the remaining divestment of our Pigments business in 2020 in order to build the new, more focused and stronger Clariant by 2021,” he added.
Schuetze and Miller reported that:
Clariant is concentrating on its faster-growing segments including catalysts, ingredients for shampoos, and chemicals for the oil and gas industries, while divesting commoditised operations.
To me it seems odd that Clariant, a Swiss Chemical Company, is focusing so much on EBITDA growth, specifically above market growth, after they had already achieved stellar results when Hariolf Kottmann was CEO. Perhaps this is due to activist investor pressure to outperform the chemical industry “EBITDA Standard of 15%.” The sale of the pigments business has not gone through yet, but it sounds like it will sometime in 2021.
It may be a good thing for the employees in the businesses that are getting sold as the new shareholders may appreciate the cash flow generation of these “commoditized” businesses. Having shareholder mandated growth as an employee in a chemical company is stressful. Think about most new product launches, it could take at minimum a year, more likely 2-3 years to launch a new product and then a few more years for that product to really gain a foothold in entrenched industries.
I’m interested in what it must feel like to be the employees that remain at Clariant and the pressure they are likely feeling to bring in more money. If you are at Clariant feel free to reach out if you want to talk.
Hexion Seeks Transformation
After the sale of its specialty phenolic resins and European forest products business Craig Rogerson is seeking a transformation for Hexion. The remaining businesses are the North and South American forest products businesses (OSB, Plywood, MDF, Particle board, Wood Adhesives) and the epoxy resin business (composites, coatings, adhesives). Joseph Chang wrote about this in ICIS and expanded that Craig Rogerson is looking for a merger as opposed to an acquisition. This makes sense as even after coming out of bankruptcy and potentially having about $425 million dollars in cash after the specialty phenolic resin sale. Hexion is still in a lot of debt and has declining revenues in part due to the pandemic have likely sped up the time table on their plans.
Hexion once tried to merge with Huntsman around 2008 and then backed out and paid Huntsman about a billion dollars. Since this event Hexion has continued to sell off what it could including the acrylic dispersions, the HAI joint venture, and the additives technology group to raise capital to pay interest on its debt and reduce the principle. Eventually bankruptcy appeared to be the best option followed more work force reductions. Rogerson is trying to figure out what to do with the rest of the business.
I think a sale of the forest products business and formaldehyde business to a company that is good at handling commoditized “specialty" products makes sense. Perhaps a merger with Arclin would make sense. A merger of the epoxy resin business with an someone looking to pivot their business away from oil and maybe capture part of the value chain on renewable energy makes sense—specifically I think Royal Dutch Shell will buy the Hexion epoxy business and reabsorb the assets it had once spun off as Resolution Performance Materials nearly 20 years ago with the addition of the Bakelite epoxy business that it absorbed during the formation of Hexion.
40 North Putting Pressure on WR Grace To Go Private
40 North is a significant shareholder of WR Grace and they are trying to take the company private at $65 per share in cash, which is up from the earlier proposal in November according to Janet Miranda of ICIS. WR Grace spun off GCP Applied Technologies (my current employer) back in 2016 and GCP Applied Technologies has since seen a full board change and a new CEO due to activist investor pressure led by Starboard in 2020 where 40 North is also a shareholder.
Taking WR Grace private may be a way to sell off the catalyst businesses to competitors and/or merge it with an existing private company that has a complimentary business. WR Grace’s businesses are focused on catalysts, fine chemicals, silicas, and absorbents.
PPG Acquires Another Coatings Company
The acquisition of Wörwag, a German manufacturer of automotive and industrial coatings, by PPG was announced this week. The Polymerist covered PPG’s other recent acquisitions such as Ennis-Flint and Tikkurila, but I missed one on January 5th about VersaFlex, a polyurea/urethane and epoxy coating company.
A company like PPG might acquire others for a few reasons. The first is that it may be able to use the currently super low interest rates to borrow against its balance sheet to bolt on acquisitions with the goal of growing their topline revenue while combining the back office services with their existing business. Getting seasoned and experienced R&D and marketing people in these new verticals that have a good understanding of local market needs/wants from a product development side is not easy. A second reason why a company might want to grow is that they fear a takeover by a competitor and getting bigger might make it more difficult for someone to “buy them out” in a sense or potentially quell any sort of activist investor notions that the company is not using their cash wisely. PPG’s competitor Sherwyn-Williams acquired Valspar back in 2016 and became the largest paint company in the world and maybe PPG would like to challenge that notion?
McDonalds is Phasing out PFAS by 2025
PFAS or perfluoroalkyl substances are compounds that are used in manufacturing Teflon (polytetrafluoroethylene). DuPont/Chemours got in trouble awhile back for certain types of PFAS such as perfluorooctanoic acid as reported by Nathanial Rich for the New York Times. Fluorinated alkyls are great at resisting the oil commonly found in McDonald’s food, but McDonalds appears to be the leader when it comes to the issue as their competitors Burger King and Wendys have yet to move on the issue or provide guidance according the Environmental Defense.
I think the last time I ate at McDonalds was during a particularly low point during the pandemic. I will definitely be refraining from all fast food though when thinking about the PFAS issue. I think Five Guys is probably still fine though (Cajun fries = the best).
That’s it for the news so far this week.
Tony
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