Mobil Chemical Co. and Hoechst AG are pooling assets to form a giant oriented polypropylene film joint venture.
The two firms, already majors in OPP film, agreed to form a $1 billion-a-year venture with about 15 percent of the global market. Their capacity, at 870 million pounds per year, will be nearly triple that of their nearest competitor, Applied Extrusion Technologies Inc. of New Castle, Del.
The merger will force more consolidation in the industry, predicted Tony Allott, chief financial officer for AET. Allott's firm has been looking for OPP acquisitions and is planning internal growth as well.
Analyst Douglas Groh said the Mobil/Hoechst venture should be ``a strong and formidable partnership that will be a threat to weaker players in the marketplace.'' Its clout could force OPP film prices down, he predicted in a March 19 telephone interview from Merrill Lynch Capital Markets' office in New York.
The venture expects OPP film demand to grow 6 percent a year as usage rises in snack, confectionery, bakery, label and other segments. Hoechst also will bring its electronics capacitor business to the table, a market in which Mobil is not active. Mobil will provide coated and uncoated OPP capacity while Hoechst has focused on uncoated grades, according to Mobil spokesman Michael Kimmitt.
Allott said the venture's impact will be felt mainly in Europe, where both Hoechst and Mobil have large plants. Mobil and AET are dominant in North American markets.
In announcing the venture, Mobil and Hoechst said they expect it to achieve cost savings of $40 million annually.
After the venture forms, Allott claimed AET will be the world's second-largest global OPP producer. It is now starting up a 10-meter-wide line at Terre Haute, Ind., that will boost AET's OPP film capacity to 235 million pounds a year.
Kimmitt estimated the venture will hold about 30 percent of Europe's market, but the partners do not expect any antitrust issues to scuttle the deal, which they target for completion by July 1. Officials had no figures for the proposed venture's North American sales.
Hoechst spokeswoman Gabriele Rua said the agreement does not include an option for Mobil to buy Hoechst's interest in the venture.
Hoechst has been splitting up its groups into smaller units ``to force each to be stronger and to play a bigger role in their markets,'' Rua said from Hoechst's OPP headquarters in Neunkirchen, Germany.
Besides AET, the Mobil/Hoechst venture's main competitors will include Vibac Finanziara SpA of Alessandria, Italy; Formosa Plastics Corp. of Taipei, Taiwan; and Toray Industries Inc. of Tokyo.
Mobil's OPP film operations, with annual capacity of 500 million pounds, are in Connecticut, Georgia, Oklahoma, Ontario, Belgium, the Netherlands and Italy. Its TFM Packaging Films Co. venture in Rayong, Thailand, is included in the agreement, said Kimmick. Mobil Chemical's Films Division is based in Pittsford, N.Y.
Hoechst's OPP plants, run by subsidiary Hoechst Trespaphan GmbH, are in Neunkirchen; Swindon, England; and Mantes, France. Hoechst recently bought out Courtauld plc's 28 percent interest in those plants.
Mobil and Hoechst each will own 50 percent of the venture, with Hoechst providing undisclosed compensation for its smaller OPP film asset base. The venture's chief executive officer will be Bob Dobies, Mobil Chemical Co. vice president and general manager of Mobil Chemical's films division. Chief operating officer will be Andreas Grein, chairman of Hoechst Trespaphan.