Mergers, Acquisitions, Spinoffs, and Lawsuits
Companies and parts of companies tend to always be changing hands
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This week’s news theme focuses on the more finance oriented aspects of the chemical industry such as the mergers and acquisitions (M&A), spinoffs, lawsuits, and layoffs. I am considering putting together a really long list of the top 50 global chemical companies and linking their quarterly reports as well, maybe once all of the 2020 Q4 reports are out. Any suggestions consider replying to this email or emailing me directly at polymerist@substack.com
DuPont Sells Off Businesses While IFF Gets Bigger And A New Look
Melody M. Bomgardner reported for C&EN that DuPont has finalized the sale of the Nutrition and Health business to International Flavors and Fragrances for $7.3 billion dollars. The new DuPont will primarily be composed of three business units namely Mobility and Materials, Water and Protection, and Electronics and Industrial with combined revenues of about $13.7 billion going forward.
Yimie Yong reported in Deal Street Asia that DuPont’s Clean Technologies business was sold to a private equity consortium comprised of BroadPeak Global, Asia Green Fund, and The Saudi Arabian Industrial Investments Company. The deal is valued at about $510 million in cash and financing is being done through Tensile Capital Management. The business represents alkylation technology, regenerative sulfuric acid catalysts, and air pollution and scrubbing technologies for control of industrial emissions.
If this seems like a very boring and niche deal then you are right, but the technologies represented in this business are critical for reducing green house gases and ensuring recycling of chemicals like sulfuric acid. By taking DuPont’s Clean Technologies business private there is a chance that it will be run better in private equity or get merged with other businesses that these private equity firms hold.
From Bomgardner for C&EN:
With those details settled, DuPont says it’s ready to invest the $7.3 billion in proceeds from the IFF deal in its remaining businesses. It will start by using $5 billion to retire debt.
To me, DuPont is almost unrecognizable from five years ago and they announced that they will share the liability from Chemours on the PFAS debacle. I wonder if shareholders at DuPont realized that being so big is actually not a benefit, but rather increases liability of the company in the long run and leads towards more inefficiency. $13.7 billion in revenue is nothing to scoff at, but I wonder if DuPont will continue to slim down under the consideration that smaller and focused might actually be better for shareholders in the short term view of the next few years. Five years from now DuPont might look completely different from what it looks like now.
Meanwhile, IFF has released a new image via press release and looks like a whole new company too:
IFF’s new brand identity and tagline: Where science and creativity meet, captures the company’s longstanding focus on the dynamic interplay between artistry and science to deliver differentiated, integrated solutions to customers that amaze and delight. IFF is a force for good in its communities worldwide, accelerating sustainability-driven change across its industry.
The company’s purpose, Applying science and creativity for a better world, continues to inspire everyone at IFF to push past traditional industry boundaries and commits to be a force for a better and more sustainable future.
Core to the company’s strategy for success, a central vision: Be the partner for essential solutions, reflects its vital leadership role in the global value chain for consumer goods and commercial products, and deep commitment to be guided by a customer-centric approach in everything we do.
This is a huge move for IFF with the DuPont Nutrition and Biosciences Merger. IFF has traditionally played in the markets that their name suggests, which is flavors and fragrances. They now have all of these new businesses to try and harness synergies and put different pieces of intellectual property together and the business is really bigger than the name now. The new IFF will now need to show their shareholders that they can bring the value.
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Bayer Getting Sued By Shareholders Over Monsanto
Robert Birkett reported for ChemWeek that Bayer is being sued by shareholders over Monsanto’s lawsuits:
They accuse the company of “breaches of duty under capital market law”, claiming that the “risks of the purchase were not adequately presented to the shareholders.” One of the firms believes that the case before the court could develop into a “model investor proceeding”, citing a previous trial involving the car manufacturer, Volkswagen (VW). “One lawsuit then becomes representative of all others negotiated.” That firm was reportedly involved in the VW proceedings. The second firm is representing shareholder Kingstown Capital Management, which seeks €37 million ($45 million at the current rate) in compensation from Bayer, according to the WirtschaftsWoche report.
Monsanto had a lot of lawsuits being brought against them over their herbicide RoundUp and more recently Dicamba. Being in the business of selling pesticides and herbicides makes a lot of money, but as the Notorius B.I.G. said “mo’ money mo’ problems,” and some of Bayer’s shareholders do not think the revenue from the Monsanto acquisition is worth it.
Imagine you are buying this business that is telling you they make X amount of money at Y margins and they foresee Z growth over the next 10 years. Your own M&A people do their homework, but digging into all the lawsuits can take a lot of time and sometimes is very localized. IF Monsanto did not disclose all of these lawsuits and enough shareholders band together at Bayer I think we could see them spin Monsanto back out to reduce some of the liability. At this point, I don’t think Bayer will be truly absolved if they did spin Monsanto off, but they need to figure out something that will appease shareholders and governments of the EU and US.
I bet Bayer wishes they had kept Covestro from spinning off and just maintained their dual position on pharmaceuticals and specialty polymers businesses, but hindsight is 20/20.
Stepan Buys Invista Polyols Business
Stepan bought Invista’s aromatic polyester polyol business with cash off their balance sheet according to their press release. The sale includes:
two manufacturing sites, one in Wilmington, NC (United States) and the other in Vlissingen (the Netherlands), and intellectual property, customer relationships, inventory and working capital. The business acquired has global sales of approximately $100 million.
The amount the business was sold for was not disclosed. Invista was a Koch subsidiary and this acquisition seems more just a consolidation of businesses than a complimentary technology acquisition. Aromatic polyester polyols are used primarily for making fire resistant polyurethane foams for insulation of buildings, refrigeration units, and acoustic insulation.
Stepan’s CEO said the following:
"We believe the long-term prospects for rigid polyol use in insulation remain strong as energy conservation efforts and more stringent building codes should continue to drive market growth. Additionally, we believe the acquired technology will accelerate our product leadership initiatives, drive manufacturing efficiencies and output, and create increased value for the overall market. We look forward to providing the highest level of service to our new customers and are excited to add the new employees and the two new sites to our global polyester polyol manufacturing network."
Stepan is probably betting on a boom in residential home retrofits and new construction starts with record low interest rates on mortgages. They might be right, but I also see this as a lack of diversification in their business and to me makes them vulnerable to losing a lot of money in the event we see another housing downturn in North America.
Tennant Company Completes Sale of Coatings Business
Tennant has completed the divestment of their coatings business to Sherwyn-Williams as reported in a press release:
Tennant Coatings designs and manufactures indoor and outdoor coatings systems for a variety of applications and industries. For the trailing 12 months ended September 30, 2020, the coatings business generated $22.1 million in sales, or 2.2 percent of Tennant Company’s total sales. Following the sale, approximately 70 Tennant employees are expected to join The Sherwin-Williams Company.
70 employees generating 22.1 million in sales? That’s $315,714 of revenue dollars per employee. Tennant appears to sell primarily cleaning equipment for large industrial or commercial operations. Ever wonder how they clean massive indoor conference centers? They probably use a Tennant cleaning machine, kind of like a riding lawnmower but for sweeping a floor. This means the coatings segment was not core to Tennant’s business and I get why they sold it. The value of the sale was not reported, but I expect it to be at 5-10x EBITDA and the EBITDA of the company to be about 10-15% of revenue. Nice pickup for Sherwin-Williams.
Brenntag Changes Legal Status
The Essen, Germany based distributor Brenntag has changed its legal status to become a European company or Societas Europaea, SE. Previously, Brenntag was a Aktiengesellschaft or stock corporation and the new legal entity more accurately reflects the global nature of their business. I see Brenntag trucks all the time on the highway in Massachusetts and when I went to conferences pre-pandemic their booth was always huge.
Brenntag employs over 17,000 people globally and they may actually be bigger than some of the chemical companies for whom they distribute. If there was an Amazon of the chemical world then I think Brenntag might be a lead candidate for the position.
PPG Outbids AkzoNobel for Tikkurila
Sotirios Frantzanas reported for ChemWeek that PPG upped their bid over AkzoNobel’s offer to buy the Swedish paint maker. From Frantzanas’ reporting:
The offer represents a premium of approximately 8.8% over AkzoNobel’s competing bid of €1.4 billion or €31.25/share submitted on 18 January. Analysts at Bernstein (London, UK) note that PPG's proposed deal “has a high likelihood of going through,” since some of Tikkurila’s major shareholders including Oras Invest, representing a total stake of 29.34% in the company, have unconditionally agreed to sell their shares to PPG. Meanwhile, PPG says it expects the deal to close as early as March, or early in the second quarter of 2021.
If you are wondering, “is there really a bidding war going on for a paint company?” then you are right. I suppose this might be a result of the current zero interest rate policy situation here in the United States where these large coatings companies feel comfortable using debt to finance acquisitions of smaller players.
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