The specialty chemicals industry is about to find out if bigger is better, as global giants Clariant AG and Ciba Specialty Chemicals AG announced Nov. 9 they are merging to create a corporate monolith with $13 billion in annual sales.
Clariant of Muttenz, Switzerland, and Ciba of Basel, Switzerland, already rank No. 1 and No. 2, respectively, in sales of global specialty chemicals. Each has annual sales exceeding $6 billion.
The new firm, which will be called Clariant and be based in Basel, will have more than double the sales of its nearest competitor, London-based Imperial Chemical Industries plc. Clariant will own 54 percent of the new venture.
Both Ciba and Clariant produce a range of products that impact the plastics industry, including color compounds and additives. The Clariant Masterbatches division ranks as North America's third-largest maker of precolored plastic compounds. Ciba has extensive masterbatch capacity in Europe, but none in North America.
Clariant also makes a line of engineering compounds; Ciba offers epoxy-related products line.
The alliance is expected to save more than $430 million annually by 2001, and the firms plan to eliminate 3,000 jobs worldwide. The combined companies currently employ 55,000 in more than 100 countries.
Ciba North America President and Chief Executive Officer Stan Sherman said Nov. 12 that it was ``far too early'' to speculate on where the job cuts would come from. He said most of the reductions would come through retirements and job turnover. Ciba employs 4,000 in North America. Clariant's North American operations employ 2,500.
The deal is subject to shareholder and regulatory approval. Sherman said the companies are confident the deal will be approved.
``We think [Ciba and Clariant] are really complementary businesses, so we think we're in good shape,'' Sherman said. ``We'll just leave it up to regulatory officials in Europe and the U.S.''
Clariant Masterbatches, which is about to move its global headquarters from Easton, Md., to Muttenz, operates a dozen production centers in North America. Its performance plastics unit produces material in Milford, Del., and Millington, Md.
Ciba, with U.S. headquarters in Tarrytown, N.Y., produces its epoxy products in Los Angeles; McIntosh, Ala.; East Lansing, Mich.; and Brewster, N.Y. The company has no masterbatch production in North America.
Both firms also produce plastics additives at various sites in the United States and Canada. Most of Ciba's plastics additives production is in McIntosh, while its plastics colorants production is in Newport, Del., and St. Gabriel, La.
Clariant bolstered its position in that area a couple of weeks ago by agreeing to buy the additives masterbatch business of Germany's Boehringer Ingelheim Pharma KG. Clariant will add a factory in Winchester, Va., via that deal, which is to close by Jan. 1.
Sherman said he thinks the plastics market will continue to play a large role for the new company.
The Clariant-Ciba colossus expects to spend more than $470 million annually on research and development.
Clariant Chairman and President Rolf Schweizer said the merger is ``a major step in the ongoing consolidation of specialty chemicals,'' and would ``certainly shape future developments in the industry.''
The deal also ``makes excellent strategic sense with [the companies'] complementary portfolio of products and businesses,'' said Ciba Chairman Rolf Meyer.
Timothy Gerdeman, a specialty chemicals stock analyst with Salomon Smith Barney in Chicago, said the Clariant-Ciba merger is ``pretty shocking.''
``The net result is that it will be a catalyst to pick up the pace of mergers in the U.S. and elsewhere,'' Gerdeman said. ``We've all been talking about it, but until you see something of this size, it doesn't hit home. This could shake up some boardrooms.''
Officials at M.A. Hanna Co., a Cleveland compounder and distributor that competes with Clariant and Ciba, said they ``weren't particularly stunned'' by the deal.
``Everyone who's a shrewd observer is aware of the consolidation trend in specialty chemicals. This just happens to be a big and spectacular example of it,'' said Jeff Gwinnell, Hanna's vice president of corporate development and strategy. ``It's like everybody knows it's winter and we've just got an enormous dump of snow.''
The new Clariant will have significant cost advantages and lower-priced products, said Gerdeman, and that kind of price cutting would have immediate implications for specialty chemicals firms such as Hanna and A. Schulman Inc. of Fairlawn, Ohio, that compete against Clariant and Ciba.
``The Europeans in general have shown a greater tolerance for lowering selling prices,'' Gerdeman said. ``If they decide to do the same thing in color compounds, it's not going to be pretty.''
Schweizer will serve as chairman and president of the new firm, while Meyer will be vice chairman and CEO. Current Clariant CEO Karl-Gerhard Seifert and Ciba CEO Hermann Vodicka will step down.