Solutia Inc. is considering the sale of its nylon business a unit that generated just over half of the firm's sales in 2007.
St. Louis-based Solutia has retained HSBC Securities (USA) Inc. ``to explore strategic alternatives,'' including a sale, officials said in a June 30 news release. Solutia has changed the nylon unit's focus from fiber to 6/6 resin in recent years, but officials said that now ``is an appropriate time to explore strategic alternatives that would better position both the nylon business and the rest of Solutia for reaching their ultimate potential.''
The nylon unit had sales of almost $1.9 billion in 2007, representing about 51 percent of Solutia's sales total and making it the largest of the firm's four operating units. The nylon unit's pretax profit of $106 million ranked third among the four in 2007. Solutia's other products include specialty films based on polyvinyl butyral and other materials.
The first quarter of 2008 wasn't a good one for Solutia's nylon business, which had a pretax loss of $7 million in those three months. Solutia's other businesses generated pretax profit of $108 million during the quarter.
Solutia operated in bankruptcy for more than four years before exiting Feb. 28. The firm reported a total loss of more than $200 million in 2007, largely due to costs from bankruptcy restructuring.
Even in bankruptcy, Solutia had remained active, adding 160 million pounds of nylon 6/6 resin capacity last year by converting nylon staple fiber production at its Pensacola, Fla., plant. The firm also bought out joint venture stakes in rubber chemical supplier Flexsys and in Química M SA de CV, a maker of PVB interlayers in Puebla, Mexico.
In April, Solutia completed adding another 150 million pounds of nylon 6/6 capacity at Pensacola, as nylon sales to Asia continue to grow, driven by that region's automotive, electrical and consumer goods markets, the company said. Asian sales made up 28 percent of Solutia's nylon business in 2007 and the firm expects that share to rise.
Solutia Chairman and Chief Executive Officer Jeffrey Quinn recently signed $182 million in new nylon contracts with Chinese companies. During a June 23 trade conference in St. Louis, Quinn met with China's vice premier, Wang Qishan, and Vice Minister of Commerce Ma Xiuhong to ink deals of $84 million with Kingfa Science and Technology Co. Ltd. of Guangzhou; $56 million, Yongchang Nylon Co. Ltd. of Hangzhou; and $42 million, Yinzhu Chem-Tex Group Co. of Lianoning.
Jonathan Wright, president of Solutia's integrated nylon division, said China's increasing demand for nylon 6/6, in particular, has contributed to the division's growth.
But in the U.S., automotive and carpeting markets are down and Solutia participates in both those areas, said Karen Jones, a market analyst with Chemical Market Associates Inc. of Houston.
``They've had a good strategy of converting fiber assets to increase resin production,'' Jones said. ``But the rapid rise in energy and raw material costs have made it difficult, because companies like Solutia often are delayed in passing through those costs to their customers.''
Solutia issued new stock in December priced at $20 per share. Its per-share stock price briefly rose above that level, but was around $12.50 in early trading July 3. Solutia ``has been trying to restructure the company, but other [non-nylon] portions of the business have seen greater returns,'' Jones said.
Potential buyers for the Solutia nylon unit, according to Jones, might include foreign buyers looking for a strong North American presence, or private equity firms that remain interested in plastics and chemicals markets.
Plastics News reporter and Asia specialist Nina Ying Sun contributed to this story.