A. Schulman Inc. has sold off a major compounding site in Texas - and officials just might be putting a ``For Sale'' sign on the entire Fairlawn, Ohio-based company.
The 160,000-square-foot plant in Orange, Texas, has been sold for an undisclosed price to Alloy Polymers Inc., a toll compounder based in Richmond, Va. The deal was announced March 18 - one day after Schulman officials revealed that the firm had hired UBS Investment Bank to explore ``strategic alternatives'' - including an acquisition, merger or sale.
In a March 19 telephone interview, Schulman boss Joseph Gingo said hiring UBS was part of Schulman's recent settlement with disgruntled shareholder Barington Capital Group LP of New York.
``We're not saying our only option is to sell,'' said Gingo, who was named Schulman's chairman, president and chief executive officer earlier this year. ``We're asking UBS to explore the possibilities and come forward to the board with a recommendation. It could be to do nothing or to do something a year from now.
``No matter what happens, we're going to improve the operating performance of the company. I'm not going to change what I do on a day-to-day basis.''
Finding a buyer for Schulman could be challenging in the current financial atmosphere. Although Schulman ranks as one of North America's largest compounders, that part of its business has been struggling for several years, even as its European unit has thrived. North America accounted for only 25 percent of Schulman's $1.8 billion sales total in fiscal 2007. The North American unit also rang up a combined pretax loss of $36 million in fiscal 2006 and 2007.
Schulman's companywide profit in 2007 fell almost 31 percent to less than $23 million.
Taking into account Schulman's pretax profit, debt and available cash, industry analyst Bill Ridenour estimated the company would fetch a sale price equal to 9-10 times pretax profit, plus a premium of 30-40 percent. Based on the last 12 months of data, an asking price of between $800 million and $900 million would be in line, Ridenour said.
That works out to around $28 per share, since Schulman has about 28 million shares outstanding. The firm's per-share stock price was near $20.50 in early trading March 20.
``This is not a good time for Schulman to sell its business, in my view,'' said Ridenour, who is president of Polymer Transactions Inc. in Newbury, Ohio. ``However, at $28 a share, the business is likely gone if a buyer can be found.''
Ridenour identified five potential buyers for Schulman: petrochemical firm Saudi Basic Industries Corp., compounding leader PolyOne Corp., and private equity firms Apollo Management, Texas Pacific Group and Advent International.
Gingo declined to comment on buyers that might be interested in Schulman, but he noted any of the firm's competitors likely would have to take on debt to do such a deal.
``We're hearing a lot of mixed stories now,'' he said. ``It's an uncertain economy, but there's a lot of money available at low rates.''
Gingo added the UBS review ``is something we owe to our shareholders, who have been asking us to do it for several years.''
Barington and New York-based Ramius Capital Group LLC - another major shareholder - each have criticized Schulman management in recent years for underperformance, resulting in the retirement of longtime CEO Terry Haines and the placement of Barington and Schulman appointees on the Schulman board of directors. Neither firm could be reached for comment on the hiring of UBS. UBS has headquarters in Zurich and Basel, Switzerland.
Schulman also is closing an automotive-related compounding plant in St. Thomas, Ontario; but plans to open a new plant making concentrates for the packaging market by the end of the year in Findlay, Ohio.
Alloy President Charles Chiappone said the Orange plant would complement a plant his firm already operates in Crockett, Texas, about 125 miles away. Alloy will maintain the 70 production workers that Schulman had in Orange, but several office employees already have been let go.
Alloy will use the Orange site to toll-produce compounds based on engineering resins such as polycarbonate and nylon, as well as color compounds based on polyolefins. The site operates seven production lines and has annual capacity of about 135 million pounds.
Part of the plant also will be used for break-bulk work and repackaging, said Chiappone, an industry veteran who joined Alloy in 2006.
``We started this process a while ago, when we sat down with the Schulman people to see what we could do to make them more profitable,'' Chiappone said in a March 19 phone interview.