In the wake of Spartech purchase, PolyOne closing six plants

By Frank Esposito
Senior Staff Reporter

Published: July 16, 2013 11:10 am ET
Updated: July 18, 2013 4:28 pm ET

Image By: PolyOne Corp. PolyOne Chairman, President and CEO Stephen Newlin

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Topics Materials Mergers & Acquisitions Materials Suppliers
Companies & Associations PolyOne Corp. Spartech Corporation

PolyOne Corp. plans to close six of the plants it recently acquired as part of its purchase of Spartech Corp.

The plants to be closed are in Warsaw, Ind.; Evanston, Ill.; Portage, Wis.; Cape Girardeau, Mo.; Donora, Pa.; and Lake Charles, La. The closings will eliminate about 250 jobs and produce $25 million in annual savings for Avon Lake, Ohio-based PolyOne, which ranks as North America’s largest compounder and one of the region’s largest resin distributors. The closings are expected to be completed by the end of 2014.

“These actions are entirely consistent with our previously announced plans to integrate PolyOne and Spartech and to accelerate our specialty transformation,” PolyOne Chairman, President and CEO Stephen Newlin said in a July 16 news release. “By combining our resources, we expect to better serve our customers with a more competitive cost structure, improved product quality and on-time delivery with increasingly innovative technologies.”

According to PolyOne, the Warsaw and Evanston plants make sheet, while the Portage plant makes packaging, primarily film. The Cape Girardeau and Donora plants make color and engineered materials. The Lake Charles plant does contract manufacturing, although the firm declined to specify what products are made there. Some 29 of the 30 plants that PolyOne acquired from Spartech are in North America, with the lone exception being a plant in France.

Spartech had operated two plants each in Portage and Cape Girardeau. PolyOne is closing only one plant at each site. Sheet operations will remain open at both sites.

Production at the closing North American facilities will be shifted to other PolyOne locations. Some equipment will be moved as well. PolyOne will take charges of $35 million related to the closings over the next 12-18 months. That total includes about $20 million in cash charges associated with asset relocation and severance.

“While the business case for these actions was clear, we understand the impact this announcement will have on affected employees, their families and local communities,” Newlin said in the release.

A company spokesman said that no determination has been made as to possibly selling buildings, land or some equipment from the affected plants. He added that the closings will result in overall lower capacity for those products within PolyOne.

Reducing capacity “is a key objective of the realignment because it will improve operational efficiency to better serve our customers,” the spokesman said.

PolyOne paid $393 million for Spartech, a major producer of plastic sheet as well as color and additive compounds based in Clayton, Mo. The purchase price represented an almost 60 percent premium over what Spartech’s stock was trading for at the time the deal was announced.

Spartech had annual sales of more than $1 billion, but had struggled recently, losing more than $70 million combined in its 2010 and 2011 fiscal years. PolyOne officials have said the deal is expected to create $65 million in annual cost synergies by the end of the third year after the acquisition.

Industry consultant Phil Karig — a former Spartech executive — said that the closing of the six plants “is probably only the first of several steps that PolyOne will take to rationalize the former Spartech plants.”

PolyOne “will transfer what they can to other plants, maybe license or toll some current proprietary products that just won't fit in another PolyOne plant, and then they'll look at selling assets that are either not a strategic fit or which might bring a high enough price to warrant a sale in the short-term,” Karig wrote in a July 17 e-mail.

Karig — who held a number of executive positions with Spartech from 2000-09 — added that the compounding plants in Donora and Cape Girardeau “were sure to be among the first that PolyOne would slate for closure after the Spartech acquisition.”

“If the product at a particular Spartech plant was compatible with a PolyOne plant it would move,” wrote Karig, who’s now managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis. “If not, especially if the margins were too low, such as for certain automotive products, they might just be discontinued due to not fitting with PolyOne's emphasis on specialty products.”

PVC-based sheet made at the Warsaw plant might be a good fit elsewhere within PolyOne because of the firm’s history of making PVC-related materials, he added. Spartech had acquired the Warsaw plant as part of its purchase of the Royalite business from Uniroyal Technology in 2000.

PolyOne posted sales of $801 million in the first quarter of 2013, up almost 8 percent vs. the same quarter in 2013. But the firm’s profit fell 25 percent to $15.1 million in the same comparison. Spartech’s results were included in the quarter as of March 13, the date the deal closed.

For first-quarter growth, PolyOne’s global specialty engineered materials unit led the way, moving up almost 13 percent to almost $160 million. The unit generated about 19 percent of the firm’s first-quarter sales before eliminations.

PolyOne’s per-share stock price has enjoyed a good run on Wall Street so far in 2013, beginning the year around $20 and standing at $28.20 in late trading July 18, for a gain of almost 40 percent.

In 2012, PolyOne posted sales of $2.9 billion. The firm operates more than 80 manufacturing and distribution sites worldwide.


In the wake of Spartech purchase, PolyOne closing six plants

By Frank Esposito
Senior Staff Reporter

Published: July 16, 2013 11:10 am ET
Updated: July 18, 2013 4:28 pm ET

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