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A. Schulman buying Network Polymers, planning more restructuring actions overseas

By: Frank Esposito

May 28, 2013

FAIRLAWN, OHIO -- A $50 million acquisition. Job cuts. Plans to sell a plant in Australia.

All in all, it was just another week for A. Schulman Inc., the compounder, concentrate maker and distributor based in Fairlawn, Ohio.

The acquisition calls for Schulman to purchase engineered resin compounder and distributor Network Polymers Inc. for around $50 million. Akron, Ohio-based Network "is an excellent fit with our ongoing strategy, as we continue to enhance our niche engineered plastics business in the U.S.," Schulman Chairman, President and CEO Joseph Gingo said in a May 28 news release.

In the same release, Network CEO Alan Woll added that "the highly talented teams" at Network and Schulman "share a passion for providing custom formulations that meet the most demanding customer needs and applications." Woll co-founded Network in 1986 with partner Marvin Becker, who passed away in 1995.

Network employs about 70 at a 72,000-square-foot plant in Akron, compounding ABS, polycarbonate and similar resins. The firm posted sales of $65.3 million in 2012.

In a May 29 phone interview, Schulman executive Gustavo Perez said that his firm plans to keep Network’s Akron plant in place, even though Schulman operates its own production plant just a few miles away. “We need to use that [Network] talent,” he said.

Woll added by phone May 29 that keeping the Network plant open “was a major requirement of the deal….I wouldn’t have done it any other way.”

Perez said that Schulman and Network didn’t compete against each other and that the addition of Network’s product mix, particularly in materials such as ABS and ASA, moves Schulman into markets where it hadn’t had much of a presence. “That’s why (Network) was attractive,” he said.

In addition to its own products, Network since 2009 has licensed Centrex-brand ASA from Ineos Group. That material is used in sheet and capstock applications in the construction and automotive fields.

The sale in a way is a culmination of Woll being familiar with Schulman since he entered the resin market more than 40 years ago. “I always respected Schulman and when it came time to start my own business, I sort of modeled it after what they did. Except we did styrenics and they did polyolefins and PVC. And they sold into automotive and we sold into everything else.”

Over the years, Woll would talk with Schulman staffers about how the two firms would be a good fit, but Woll said those conversations didn’t become serious until the last year. “We had been courting for a while,” he said. “Now it’s a match made in heaven.”

“I’m proud of what we’ve done here in these last 27 years,” added Woll, who will remain with the firm for three years in a consulting role.

Polymer Transaction Advisors of Newbury, Ohio, served as a financial advisor to Schulman on the Network deal.

Buying Network “strengthens Schulman in compounding, with the addition of a very highly regarded and effective compounder,” PTA president Bill Ridenour said in a phone interview. “It also helps (Schulman) grow their distribution business.”

For Fairlawn, Ohio-based Schulman, the Network acquisition is its seventh in less than four years. Most recently, the firm in August 2012 paid $36.5 million for Worcester, Mass.-based color concentrates maker ECM Plastics Inc. Schulman has spent almost $400 million on those seven acquisitions.

Schulman also still is pursuing its buyout offer for Ferro Corp., even though officials with that Mayfield Heights, Ohio-based materials maker rejected Schulman's $6.50 per-share offer earlier this year.

"We continue to search for strategic acquisitions in the specialty plastics space," Gingo said in the release. "And while we are still interested in entering into a mutual dialogue…with Ferro Corp., we will continue with our aggressive bolt-on acquisition strategy."

In a May 29 phone interview, Schulman spokeswoman Jennifer Beeman added that there currently are no discussions going on between Schulman and Ferro. Schulman has no formal timetable for its offer, she added.

The Network deal was announced on the same date that Schulman announced job cuts in its European operations, as well as plans to sell its rotomolding compounds plant in Australia. The company said the additional restructuring in Europe is expected to generate approximately $4 million in annual savings.

"Given the ongoing poor economic environment in Europe, we felt it was necessary to continue our current restructuring efforts and expense reductions to better align with market demand," Bernard Rzepka, executive vice president and chief operating officer, said in a news release.

Previous cost reduction programs in Europe already had provided annual savings of $6 million. "We do not expect any interruptions in service to customers resulting from these actions," Rzepka added.

Beeman said the job cuts would total less than 100 in Europe, where the firm employs about 2,200. She said the cuts would come from administrative and financial positions, with a smaller number coming from operations. “Generally, [the cuts] won’t be the people on the floor,” she said.

Europe generates about two-thirds of Schulman’s annual sales and operating income, as well as employing about two-thirds of the firm’s total head count. “Unfortunately, Europe remains a pretty choppy environment overall,” Beeman said. “It’s not expected to pick up any time soon.”

In Australia, Schulman said it intends to sell its rotational compounding business in Brisbane. The company will reflect the results of this business as discontinued operations in all future financial statements.

The operating results for this business previously were included in the company's Asia Pacific segment. A. Schulman said it plans to engage a financial adviser to assist in selling the business and expects to complete a sale within 12 months. The Australian business recorded revenue of approximately $25 million for fiscal 2012.

"This business has represented a very small portion of our portfolio, and we have been challenged to sustain profitability in the smaller Australian market despite the strategic restructuring programs we have implemented in recent years," Gingo said in the release.

He added that the planned sale will let the company "focus on our considerable opportunities in profitable growth markets and seek out further strategic acquisitions in the region, including Australia."

Even as Europe has struggled and Schulman’s buying spree has continued, the firm has been active on other fronts. It opened its first plant in India in April, one making additive concentrates in Vadodora. Schulman also announced May 22 at the Chinaplas trade show that it plans to more than double capacity at its compounding plant in Dongguan, China.

In the first half of its 2013 fiscal year — ended Feb. 28 — Schulman posted sales of just under $1.06 billion and first-half profit of just over $24 million. The sales number was up almost five percent vs. the first half of fiscal 2012, while the profit total represented an increase of almost four percent.

On Wall Street, Schulman’s per-share stock price began the year near $30 and was near $29.15 in late trading May 29.