A group of Minneapolis investors that has acquired almost 7 percent of PVC maker Borden Chemicals & Plastics in the past two months plans on working with an investment banker to find ways to improve the financially troubled firm.
``We think Borden is significantly undervalued and are exploring all options, including buying the company,'' investor Marc Kozberg said.
Kozberg is president of Dougherty Summit Advisors, a Minneapolis firm with a reputation for buying and retooling struggling companies. Kozberg's investment group includes Tonkawa Inc., the family office of Minneapolis billionaire Curt Carlson, as well as the Summit Capital Appreciation Fund, of which Kozberg is a general partner.
A group led by Kozberg and Dougherty Summit investment executive Bruce Hendry purchased 5.1 percent of Geismar, La.-based Borden in late October. The Tonkawa group joined in late November, allowing for the purchase of an additional 1.6 percent.
Borden, owned by Kohlberg Kravis Roberts & Co. of New York, ranks as the fifth-largest PVC maker in the United States.
Borden's third-quarter sales dropped nearly $62 million in 1998, with almost $37 million of that chalked up to decreased PVC revenues, according to the firm's quarterly report. Borden's PVC sales volume fell 11 percent, while its PVC selling prices dropped almost 21 percent in the quarter. PVC accounts for about two-thirds of Borden's sales, with the remainder coming from methanol and derivatives and nitrogen products.
U.S. market prices for PVC have dropped an average of 8 cents per pound this year, according to Plastics News' resin pricing chart. PVC makers have struggled with overcapacity and the collapse of the Asian export market.
Through the first nine months of 1998, Borden's revenues tumbled almost 26 percent. Borden stock was trading at just under $4 per share Dec. 3 after being in the $8-$9 range early in the year.
In spite of Borden's financial turmoil and the potential changes the new investors could bring, Borden spokesman Pete Loscocco said the company's meetings with Kozberg's group have been cordial.
``We don't disagree that we're undervalued,'' Loscocco said. ``The industry is in a pretty tough part of the cycle and our units are under a lot of pressure.''
He stressed that Borden remains committed to the PVC business in spite of a gloomy 1998. ``PVC has been a good business for us over the years, in spite of the near-term problems,'' Loscocco said.
Borden's lack of full integration in the PVC chain has hurt its profitability. Loscocco said the company is looking to improve its backward integration by expanding its vinyl chloride monomer capacity in 2000 and through a recent long-term ethylene supply contract with Shell Chemical Co.
Kozberg added his investment group also believes things are looking up for the PVC market beyond 1998.
``We think the next few years in PVC are going to be better than this last year,'' he said. ``If we didn't, we wouldn't be doing what we're doing.''