Nova Corp. of Calgary, Alberta, shook up the polystyrene industry July 21 when it acquired the styrenics business of Huntsman Corp. of Salt Lake City. The move vaults Nova past Dow Chemical Co. of Midland, Mich., as North America's largest PS producer.
The combined polystyrene, expanded PS and styrene works now make Nova the world's largest styrenics maker, with about 13 percent of the global market, company officials said.
Huntsman, which had ranked second in the North American PS market, will receive $920 million in the transaction. That total includes a $235 million stock package that will make Huntsman Nova's largest shareholder.
Nova will operate Huntsman PS plants in Belpre, Ohio; Joliet and Peru, Ill.; Chesapeake, Va.; and Carrington, England; and EPS plants in Peru; Mansonville, Quebec; and Ribecourt, France.
The deal also includes 1.25 billion pounds of Huntsman styrene monomer capacity in Bay Port, Texas. Huntsman will retain its styrene and PS operations in Odessa, Texas, and West Footscray, Australia.
The Huntsman plants included in the deal employ about 1,000.
Nova's total PS capacity now stands at about 2.5 billion pounds, while its EPS capacity has reached 765 million pounds. In styrene, the enlarged Nova will be able to produce 3 billion pounds by year's end.
Total annual sales from Huntsman's styrenics business are about $900 million. The firm's remaining petrochemical, plastics, packaging and businesses industries total $4 billion in sales.
The rumored move became reality almost a year after Jon Huntsman Sr., chairman and chief executive officer, said he wanted to move his company away from commodities and into less-cyclical industries.
Nova President and CEO Jeff Lipton said Nova is confident it can achieve short-term value through rapid cost reductions, which could include downsizing or consolidation of the plants and product lines involved.
``We expect a combination of growth and rationalization,'' Lipton said in a July 21 teleconference. ``We're not approaching it by saying, `How many jobs do we have to eliminate?' We're asking how many jobs we need to run a strong, efficient business.''
PS profitability has been declining for the past couple of years even though demand for the material has risen. Overcapacity has taken its toll, and infighting among PS makers has made it difficult for them to raise prices in recent months. A successful 3 cent hike earlier this year already has disappeared.
And though the Nova-Huntsman deal is reshaping the territory, Lipton said the market will remain fundamentally the same.
``This agreement should have no significant impact on the marketplace at all,'' he said. ``The market is highly competitive and it will remain that way.''
Lipton added that Nova's commitment to plastics commodities may continue in the form of a deal it is discussing with an unidentified PE producer.
Nova separated out its chemicals business earlier this year. At the time, Lipton said the move would increase Nova Chemicals' acquisition opportunities.
Huntsman said his decision to turn over the PS operations was a difficult one, since PS was the company's first petrochemical product.
His first business was Huntsman Container Corp., a PS packaging firm he launched in 1970.
Huntsman entered the PS resin business in 1983 when it bought Shell's Belpre plant, and grew by acquiring the PS businesses of Hoechst AG and Amoco Polymers.
``I bought my first truck of polystyrene in 1962, so it's been a long, long haul for me in this business,'' Huntsman said during the teleconference. ``We weren't comfortable to sell this part of the business without going with it in some way. We don't want to disassociate ourselves from what had been the heart and soul of our business.''
Huntsman added that his company had declined several offers in the past year from firms that wanted to buy the styrenics business outright.
Proceeds from the transaction will be used to pay down debt and to fund the Huntsman Cancer Institute, hospitals and homeless shelters, he said.
Jon Hunstman Jr. will be named to Nova's board of directors to represent the family.
Competing PS producers and industry analysts said the deal is positive for the industry.
``Everybody is better served when a weaker, less-committed player is replaced with a stronger, more-committed player,'' said Robert Beil, Dow's global PS business director. ``Nova has picked up cost efficiency and will end up being a stronger polystyrene producer.''
Jean Meador, a PS industry analyst with Houston's Phillip Townsend Associates Inc. consulting firm, said the deal generally would have a positive effect on the industry. But, she added, the fact that North America's No. 2 producer was compelled to take such action ``reflected negatively'' on the market.
``With the January price increase gone, producers are back to unsustainably low margins,'' Meador said. ``If Nova does make some rationalizations with their plants, this point in the cycle would be a good time to do so.''
Huntsman's exit as a major PS producer ``clearly demonstrates that industry profitability continues to suffer,'' Dow's Beil said.