SAN FRANCISCO (Updated Jan. 10, 10:45 a.m. EST) — Internet trading site ChemConnect Inc. plans to buy rival CheMatch Inc. in a stock transaction designed to boost online purchases of resin, chemicals and fuel products.
The merger of major dot-com players further consolidates what used to be a splintered market of Internet auction sites.
San Francisco-based ChemConnect inked a deal late Jan. 7 to buy CheMatch, after gaining the approval of both boards. The companies, with similar product offerings and the financial backing of large resin companies, managed a combined total of more than $4 billion in transactions in 2001.
“What this does is accelerate the process and get ChemConnect to the point where it is financially viable,” said Leif Eriksen, chemical industry analyst with Boston-based AMR Research Inc. “It creates what could easily be described as the most successful remaining independent trading exchange.”
While strengthening ChemConnect, the deal also will help the company cut costs through consolidation, said ChemConnect Chief Executive Officer John Robinson in a Jan. 8 telephone interview.
ChemConnect will slash its payroll to about 80 employees, about half the total currently employed by the two companies, he said. Robinson expects the company, which will keep the ChemConnect name, to be profitable by the end of 2002.
ChemConnect plans to move its headquarters to the CheMatch offices in Houston once the sale receives regulatory approval, expected by late February. Terms were not announced.
The sale was made to remove any indecisiveness from a resin buyer's willingness to use the Web, Robinson said. With two sites conducting many of the same functions, potential e-traders had difficulty making a choice, he said.
“People not only had to decide whether to use e-commerce and bring in work processes, but they had to decide whom to do it with,” Robinson said. “It brought one more piece of uncertainty, one more decision to make, one more risk to take. We've made this decision considerably easier for the customer.”
Resin and chemical suppliers had divided their dot-com allegiances. Minority investors in CheMatch, launched in 1997, include DuPont and distributor H. Muehlstein & Co. Inc., while ChemConnect investors include Dow Chemical Co., BASF AG and DSM NV. Bayer AG and GE Plastics had investments in both sites.
The decision to combine the two should put ChemConnect on stronger financial ground, said Bruce Evancho, global financial manager for DuPont e-business.
“With fragmentation and different options to choose from, there's always concern that a company has staying power for the long term,” said Evancho, based in Wilmington, Del. “This makes us feel more comfortable that there's a solution for the long haul.”
In 2001, DuPont rapidly accelerated its volume of private auctions for wide-spec and nonfirst-grade resins conducted on the CheMatch site, Evancho said.
If ChemConnect can cut operating expenses and increase transaction volumes, customers also might see cost benefits with lower subscription fees, Evancho said. Robinson said ChemConnect will review pricing for consistency, but will focus more on enhancing customers' purchasing experience.
CheMatch performs more sell-side transactions for plastics processors through wide-spec auctions, than does ChemConnect, said CheMatch President Larry McAfee. ChemConnect has focused on building a strong exchange market for spot and contract purchases.
“There was some overlap, but our strengths are highly complementary,” McAfee said. “It's a unique situation when you can put together the No. 1 and 2 companies to create a superpower.”
ChemConnect performs about three times as many transactions as does CheMatch, Robinson said.
Outside of many resin-company and distributor sites, few other independent dot-coms remain in that field. Omnexus, another significant dot-com, provides a link to more than 20 resin and equipment producers through its purchasing site, but does not provide bulletin-board exchanges or auctions.
ChemConnect and CheMatch both had conducted futures trading of commodity resins and chemicals, with CheMatch using the Chicago Mercantile Exchange to regulate those transactions. Those services will continue, Robinson said.
John Beasley, ChemConnect chairman and co-founder, will not move to Houston. Robinson, a former BP Amoco plc executive, will assume both the president and CEO titles.
ChemConnect also will close the Richmond, Va., office that it acquired as part of the company's merger with chemicals supply-chain hub Envera in June.