Now Wall Street is salivating over the opportunity to make deals in the plastics compounding industry. Trouble is, most of the deal makers don't know too much about the business that they're setting out to consolidate. But never mind such details. The May 8 announcement of the merger of M.A. Hanna Co. and Geon Co. will instigate at least a few copycat purchases by smaller players. Some will make sense, others will not, and probably in more than a few cases the deals will seem logical, except that the buyer will overpay for the acquired business.
Hanna and Geon have been talking about a merger for more than a year, although the final details came together rapidly just this month. Some observers believe the combination makes sense because it brings Hanna's experience with engineering compounds and thermoplastic elastomers together with Geon's leading position in PVC compounds.
Competitors and customers will watch to see how Geon will be integrated into Hanna's distribution business, and whether Hanna's nascent Web-based sales project will get a boost from Geon's more advanced Internet effort.
Processors should wonder what the deal means to them. So far, we don't see any red flags. The companies serve many of the same customers, but they do not offer identical products.
Still, whenever two large companies combine, customers worry that an essential niche grade, a favorite compounding plant or convenient warehouse will not survive the merger. Geon and Hanna will be under pressure to reduce costs — in fact, they already promise to improve operating profit by $50 million annually by 2002.
That effort will make the combined Geon/Hanna operation a more formidable competitor. But it also should create opportunities for smaller challengers to serve niche areas that the Goliath no longer deems rewarding.