The series will end with the No. 1 story in our 20th Anniversary special edition March 16.
(Dec. 5, 2008) — To celebrate the 20th anniversary of Plastics News in 2009, we continue with our weekly countdown of the Top 20 stories covering issues of lasting impact. Plastics News staff members voted on the stories.
No. 14: Resin company consolidation
Deep in an Egyptian pyramid, scientists one day will discover hieroglyphics describing consolidation in the pyramid-building market.
“There's too much capacity,” the hieroglyphics will read when translated. “And not enough demand. Plus, a lot of business is moving to Mesopotamia.”
Clearly, industry consolidation has been around for a long time. The last 20 years of the plastic resin market have been no different.
Just last year, Basell Holdings BV swallowed up Lyondell Chemical Co. to create LyondellBasell Industries AF SCA, the world's largest maker of polyolefins. From a symbolic perspective, that $19 billion deal was the largest plastics move since Dow Chemical Co. lassoed Union Carbide Corp. in 2000.
There have been others along the way, of course. Exxon Corp.'s 1998 acquisition of Mobil Corp. was driven by oil, but also created a major plastics and chemicals unit. Ineos Group lunged for the brass ring in 2005 when it acquired the polyolefins and olefins business of British Petroleum plc for $9 billion cash.
These deals and others of their kind are the mark of a maturing industry. As the economics of resin production change, individual companies decide the profit levels of the business are no longer sustainable or are about to decline. At that point, firms either partner with competitors or find buyers that are willing to accept the market's up-and-down cycles and risks of lower profit.
Situations also arose where end users that could operate small-scale resin plants for their own internal use also ended up victims of economics. This scenario is most prevalent in the PVC field, where the 20 resin makers that roamed North America in 1989 have been reduced to five.
“The [PVC] market has been whittled down to those producers with a low-cost position,” Oxy Vinyls LP executive Barry Hendrix said in a 2004 interview with Plastics News. “It's really been a survival of the fittest.”
Mergers and consolidations always are met with much fanfare, although they may struggle to live up to expectations.
“Through our increased scale and geographic scope, we will be well-positioned for the next peak of the cycle, with a broadened customer base across a wider range of products and applications,” Dow boss William Stavropolous said when the Carbide deal was announced in 1999. Six years later, Ineos chief Jim Ratcliffe described his firm's purchase of the BP unit as “a transformational acquisition.”
(Historians one day may debate whether Stavropoulos and Ratcliffe employed the same speech writers.)
However, the current economic storm may change the nature of consolidations and mergers, for the near future at least. It has already turned Hexion Specialty Chemicals Inc.'s acquisition of Huntsman Corp. into a legal firefight where the only thing that's guaranteed is the enrichment of a battalion of lawyers. Hexion — majority owned by private equity firm Apollo Management LP — wants out of the deal, claiming Huntsman is in worse financial shape than when it was announced last year. Huntsman in turn wants various courts to force Hexion to honor its intentions.
(This kind of thing used to happen all the time in feudal England. It was usually worked out by adding a couple of pigs or a barrel of ale to the deal. Lawyers were not involved.)
Mergers & acquisitions veteran Bill Ridenour told Plastics News last month that the Huntsman/ Hexion battle was “an extraordinary situation.”
“I'm familiar with the language in these types of contracts,” Ridenour said. “And I'm amazed that the judge didn't hold to that language.”
(Language now used in reference to that deal probably isn't suitable for a family publication.)
Even Dow is being tested, with the value of its petrochemicals joint venture with a Kuwaiti firm decreasing by more than $1 billion since it was announced earlier this year. The impact of that loss — and of the Huntsman/Hexion stand¼off — might slow the con¼solidation market down for a while.
Or at least until a plastics executive thinks he can do a better job running his competitor's business. So maybe the wait won't be that long after all. Frank Esposito is an Akron, Ohio-based