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Trinseo has withdrawn its prospectus for a $400 million initial public offering of stock.
Trinseo is the rarely used name for Styron, the former Dow styrenic polymer and polycarbonate unit. Dow sold the unit to the private equity firm Bain Capital for $1.6 billion in 2010.
Bain changed the name to Trinseo for some reason and filed for an IPO two years ago. In its letter to the Securities and Exchange Commission, dated June 15 pulling the registration statement, the company would only say that the withdrawal “would be consistent with the public interest and the protection of investors.” I think that just means that no one gets hurt.
Incidents at chemical plants in Louisiana one week ago left three people dead. Two were killed in an explosion and fire at a Williams Cos. ethylene cracker in Geismar. One died when a nitrogen manifold ruptured at a CF Industries complex in Donaldsonville.
A write up by Jeff Johnson and me appears here. The genesis of the story is an interesting one. Last Monday, I called Jeff about blasts. I made the observation that both plants were undergoing work. The Williams plant is being expanded by 50% this year to take greater advantage of shale gas. An ammonia unit at the CF facilities was undergoing a scheduled turnaround.
The process of shutting down, working on, and restarting units is a major danger for chemical operators in a similar way that takeoff and landing are the most treacherous moments of flight.
Jeff is very aware of this. He owns the Chemical Safety & Hazard Investigation Board beat. He also mentioned to me that the CSB is overtaxed. Its staff of 40 has 15 investigations to cover right now. It hasn’t launched an investigation into CF yet for want of manpower.
Shale will lead to a flood of construction the likes of which the U.S. chemical industry has never seen. According to the American Chemistry Council, the amount of capital spending for already announced products is $71.7 billion, and climbing. There will be a big chunk of the chemical industry in the danger zone for accidents.
Back in March, I attended a talk at the IHS World Petrochemical Conference in Houston by Richard Meserole, vice president of energy and chemicals construction at the engineering firm Fluor. He had staggering numbers. In just a 50 mile radius from Houston, 45 projects worth $100 million or more will require 20,000 new craft workers. All these skilled laborers such as welders, iron workers, and pipefitters couldn’t even fit into the Toyota Center for a Rockets game.
Many of these workers will come from outside the region. Many will be recently trained. And though every construction site—even for a back yard deck—present hazards, are all these workers prepared for the particular nuances of an environment with volatile and highly reactive chemicals?
Let us hope that the chemical industry and those regulating it are up to the challenge.
About a year ago, I decided the best deployment of unused capital in my Scottrade account was to purchase shares of Radio Shack. My investment thesis was this: 1) I bought a TRS-80 there 30 years ago. 2) I made guitar effects pedals using Radio Shack parts there about 20 years ago. That’s it. The whole idea was predicated on nostalgia. I’m in the red thus far.
I have learned a lot about Radio Shack—the business side, not where they keep the capacitors—after the fact. (The capacitors are in a metal case with pull out drawers near the back.)
For instance, the profit center of the company is the stuff you normally think of when you think of Radio Shack: The thing that connects one electronic gizmo to another, like when you are installing an entertainment center. The problem is there isn’t much growth in that business.
The growth comes from smart phones and the like. The problem here is that the profits here are slimmer and Radio Shack has too much competition.
This is where 3-D printers come in and why my griping about Radio Shack is relevant to chemistry.
I’ve written about 3-D printing in the past. It is, essentially, a new technique for processing plastics. To make a part, one doesn’t need a costly mold. But the tradeoff is that the user can’t make many of the same part very efficiently. Thus, the technique is ideal for designers to make prototypes. And 3D printing also holds promise for hobbyists and tinkerers of all kinds, especially when firms such as 3D
Systems are offering machines for as little as $1,300.
It would seem like Radio Shack would be an ideal retailer for 3D printers and, perhaps more importantly, the consumables involved: cartridges of acrylonitrile-butadiene-styrene and polylactic acid. 3D printers are today very much like ham radios were 40 years ago and computers were 30 years ago: outlets for curiosity and creativity. 3D Printers are also cool. Who wouldn’t be fascinated seeing a 3D printer in a store, perhaps churning out a new object right before your eyes in a demonstration? Why, people might even walk into Radio Shack deliberately to see a 3D printer up close. It would be the first time the store had a draw since it did away with the Battery Club.
But there is a first retailer getting into the 3D printing business with 3D Systems printers: Staples. Is that a good fit? I suppose. They sell toner and report covers. It is the store of last resort for Blue Fun Tak in early September. I think Radio Shack would have been better, to be honest. But Staples outfoxed Radio Shack and that’s the point.
Last week, TPC put out a proxy statement for its controversial $40.00-per-share sale to First Reserve and SK Capital. Shareholders, as evidenced by quotes between $41.00 and $42.00 for the company, are looking for a better offer. And Sandell Asset Management, which owns about 7% of the firm, has been outspoken against the deal. In such cases, disgruntled shareholders always argue that company management didn’t do enough to shop the company around for a better price.
The Chemical Notebook has examined the proxy to get an idea about who was kicking in TPC’s tires and how serious they were:
First Reserve (private equity) and SK Capital (private equity): These companies first darkened TPC’s door in early December with a $30.00 to $35.00 offer. This was rejected by TPC management. However, in early January, TPC and these parties signed a confidentiality agreement and First Reserve and SK conducted due diligence. These efforts yielded a $40.00 to $42.50 proposal by mid-February and a merger agreement was drafted. But in March, TPC’s stock price climbed to an all-time high of $47.03, forcing First Reserve and SK to abandon their bid. When the stock price declined back down in May, First Reserve and SK renewed their efforts. This yielded a $40 “best and final” offer in July. On July 27, SK and First Reserve signed an exclusivity agreement with TPC. The deal was announced on August 27.
Party A (strategic bidder) and Party B (PE): These firms first signed a confidentiality agreement with TPC in January. Later that month, they decided not to pursue a deal because of other priorities. These parties later emerged from time to time throughout the sale process. In May, they told TPC that they might submit a proposal, but they didn’t. In early August, they indicated that they might be interested again if TPCs stock price declined further.
Party C and D (both PE): These companies emerged in late January with a $38 to $38.50 offer. They presented TPC with a draft merger agreement in mid-March. They dropped out in mid-April because of the rising stock price. They reemerged in May 17 but dropped out for good on June 21 because of financing concerns.
Party E (strategic): Contacted by TPC representatives in late-February, Party E said that it wasn’t contemplating strategic investments. It told TPC in mid-May that it wouldn’t submit a proposal.
Party F (non-U.S. strategic): Expressed interest in early April. It said on May 18 it was interested in a bid. TPC representatives traveled to Party F’s headquarters in early June. At the end of the month, Party F informed TPC that it would not submit a bid.
Party G (strategic bidder): It was contacted by TPC representatives. In early June, it said that it was concerned with regulatory impediments (probably antitrust) to a merger. Later that month, it told TPC that there would be no merger due to those concerns.
Party H (strategic): Approached TPC in May but nothing materialized.
Party I (strategic): Indicated interest in late June and made a $36 per share proposal in July. Talks were promptly terminated.
The Chemical Notebook’s two cents: Interest in TPC seems meager. And the highest proposal it heard was $42.50 from SK and First Reserve. (Something would have to be dreadfully wrong if they don’t at least up the bid to that.) On the other hand, with shareholders recently seeing $47.00 per share, I do wonder why the company agreed to sell itself at all.
To counter that argument, TPC would likely point to expensive dehydrogenation projects that it needs to stay competitive. It argued as much in the proxy. The expenditures on these would exceed the company’s market capitalization, it said. Alternative financing strategies, such as forming a master limited partnership, would have to be employed. TPC shareholders would thus not benefit from all of the upside of these investments. True, but some of the upside is better than none of it.
Today, a story I wrote on the on fortunes of the TiO2 market appears in the current edition of C&EN. TiO2 is the white pigment that gives paint its hiding power. If you ever labored applying coat after coat of white paint on a wall in vain trying to cover up a red finish that refuses to die with dignity, then the manufacturer of the paint you have chosen probably skimped on the TiO2. (It isn’t your fault. Actually, it is, you bought cheap paint.) I can’t think of a single commodity that is more important to the paint industry than TiO2.
And the paint industry has recently been paying dearly for TiO2. Since the 1990s, the TiO2 industry has been plagued by too much manufacturing capacity. That changed when the Great Recession forced the sector to shut down excess output. With the recovery, the TiO2 industry is now seeing the greatest profitability in about 20 years.
For the paint makers that consume the white pigment, runaway TiO2 prices have been painful. These companies are trying to mix in as little of it in their formulations as they can get away with. PPG has one of the more militant stances on this issue in the paint sector. The company wants to reduce TiO2 consumption by 10% by the end of next year. The company has gotten off to a good start, eliminating 2% by the end of the last quarter.
There is a potential market here for chemical companies that I couldn’t really get into in the article in print. Last year, Dow Chemical launched its Evoque pre-composite polymer, meant to address the problem of TiO2 crowding in latex paints. TiO2 crowding is what it sounds like it is, but there is even more to it than that.
David Fasano, a research scientist at Dow, explains that at very high loadings of TiO2 used in white and architectural latex paint—about 20%–TiO2 begins to interfere with its own ability to scatter light. This is because the TiO2 particle has a sphere of influence, called a scattering zone, that is twice the diameter of the TiO2 particle itself. As the particles come closer together, these zones overlap, diminishing the effectiveness of each other. (To understand this, I imagine an overhead projection of two dots on a screen. As the projector goes out of focus, halos form around the dots and expand until they overlap.)
Evoque, an acrylic latex film-forming resin, binds to the TiO2 particles and holds them apart so they don’t get close enough to interfere with each other. Evoque can reduce the paint loading in white and pastel architectural paints by as much as 20%.
Along with Evoque, Dow has been promoting another resin that has been in its stable for about 30 years: Ropaque. It isn’t meant to extend the use of TiO2, it is styrene-based resin that acts like a pigment itself. When Ropague forms a film, it captures little pockets of air that scatter light. This is the same effect that makes polystyrene foam, clouds, or bubble baths appear white.
Dow is quick to point out that it isn’t trying to exploit the high TiO2 prices. Evoque has been under development for a more than 5 years, before the TiO2 prices took off. However, Ashok Kalyana, architectural marketing director for Dow Coating Materials, admits that the product was launched at a fortuitous time. “This wasn’t invented just to take advantage of the situation,” he says. “But certainly the tightness in the TiO2 market has helped us accelerate our plans of introduction.”
The advent of natural gas from shale could potentially resurrect an old 175,000 bpd Sunoco refinery in Marcus Hook, Pa., near Philadelphia, according to a new report issued by the consulting firm IHS.
The report brainstorms redevelopment concepts and was commissioned by the Delaware County Council, which wants to recover some of the 500 jobs lost when the refinery closed back in December.
The Council and IHS came up with ideas that were a lot more creative than what I have usually seen driving by old industrial properties in New Jersey: 1) Leave it to rust until Mother Nature reclaims it. 2) Tear it down and build retail on it.
All of the report’s proposals involve hydrocarbon processing of one kind of another. Several of the ideas singled out in the report as having high market viability are relevant to chemicals. These are:
1) Propane Dehydrogenation: Braskem has a polypropylene plant downstream from the refinery and, as I have explained before, is likely on the hunt for feedstock.
2) Integrated ethane cracker complex: ANOTHER cracker?
3) Natural gas liquids processing.
Out of these my favorite is the dehydrogenation idea. Though, I have always preferred Philadelphia to Pittsburgh as a location for a Northeast cracker. (Better hydrocarbon infrastructure, plus I can look at it when I pass by on Amtrak on the way back from HQ). NGL processing is promising, too. But why stop there and not create a market for the liquids nearby?
The report looked at other options, too. Refined petroleum products storage (boring!), natural gas power generation (bleh!), LNG export terminal (yeah, THAT will happen so close to Philly), gas-to-liquids production (that could cost up to $6 billion, so forget it).
Cool report. Kudos to IHS and Delaware County for a lot of creative thinking.
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 times larger any purchase it has contemplated in the current era.
Espeland says the strategic fit between Eastman and Solutia justifies the scaleup. The two firms, he said, are similar in profile. Following its 2003 bankruptcy, Solutia also went through a shrinking phase, getting rid of businesses such as nylon.
Moreover, Solutia is built around strong market positions in business like its Saflex polyvinyl butyral glass interlayer sheet and its insoluble sulfur tire vulcanizing agent. Eastman sees synergies with these businesses. For instance, the company hopes to introduce cellulose-based specialty polymers into tires.
Additionally, and this isn’t something that Espeland highlighted in the talk, there seem to be manufacturing synergies as well. Eastman makes or buys eight of Solutia’s 10 most important raw materials. For instance, Eastman is the largest U.S. producer of n-butyraldehyde, used to make PVB. It’s interesting that Eastman is contemplating building metathesis in Longview, Texas, which would give it more propylene and further enhance the back-integration of its oxo-business.
To listen to Espeland, it doesn’t seem that Eastman is done making acquisitions, though it will pause at it digests Solutia. “After we get through a period of deleveraging, Eastman will be in a position of strength and have the cash to continue to do joint ventures and acquisitions,” he said. When asked about the M&A environment, he joked that while landscape was rife with acquisition targets “no one should look at chemical deals for the next year as we deleverage.”
A couple of weeks ago I attended a charming annual gathering in Houston: Intellichem’s Latin American Petrochemical Networking Meeting at the Westin Galleria Hotel. There were a few good presentations at the event. One that particularly caught my attention was that of Alfred Luaces, an analyst with Purvin & Gertz, which was recently acquired by IHS.
Here are a few takeaways from the presentation:
1) U.S. natural gas liquids production has risen by 15% since 2008, an increase of 270,000 barrels per day. Judging from the graph Luaces put up, production will increase another 400,000 to 500,000 BPD by 2015. Ethane will grow more than other NGL components like propane.
2) The amount of oil extracted from shale in the U.S. will hit 1 million BPD in by 2015 and 2 million BPD by 2020. (According to the EIA, today’s production, on a reasonably comparable basis that includes condensate and stuff, is about 8 million BPD).
3) Canadian crude production will increase by 700,000 BDP in Western Canada, hitting 3 million BPD by 2015. Here Luaces made a point that is consequential to the XL Pipeline. “We think this will be processed on the Gulf Coast eventually,” he noted. But in the meantime, it will be processed in Midwestern refineries until the capacity of those facilities fill up. This would back out imports from Columbia and Mexico. Much of THAT oil will just go to China. (The XL pipeline issue seems more nuanced than some make it out to be.)
4) The impact of the Gulf of Mexico drilling moratorium—according to a chart—will be about 400,000 BPD this year.
5) Since 2009, 2 million barrels of crude refining capacity has been shut down in North America and the Caribbean, mostly in the Northeast. Another 700,000 in closures may happen this year, the biggest being Sunoco’s Philadelphia refinery.
6) The U.S. is exporting more than 500 million BPD of gasoline, 325,000 BPD of that is to Mexico. The U.S. exported about 200,000 barrels in 2009. (Crack spreads, the margin between oil and refined products, have also been rising.)
7) The U.S. has become a net exporter of LPG (propane). Enterprise, Targa, Conoco/Phillips, and Vitol are planning export terminals or expanding terminals. (This seems to suggest that there may be some propane dehydrogenation opportunities out there.)