much smaller deal begets a top specialties firm

1
headquarters for down- stream business. World- wide upstream and chemical businesses will be head- quartered in Houston, with Exxon Senior Vice President Rene Dahan in charge of chemicals. Chemicals are an area of "good strate- gic fit" with product lines that align well, says Raymond, a Ph.D. chemical engi- neer. The combined chemical businesses have annual revenues of $17.5 billion based on production from 65 worldwide manufacturing sites. A business plan for the chemical operations has yet to be outlined, but the fate of the companies' competing petrochemical ventures in Singapore is already being questioned. Both companies also have major re- search sites in New Jersey. Exxon Mobil will lead in global olefins capacity, at 10.9 million metric tons, moving ahead of Shell and Dow. Like- wise, it will surpass those two compa- nies with 6.2 million metric tons of com- bined polyethylene and polypropylene capacity. And with about 2.2 million met- ric tons, or 14%, of global p-xy\ene ca- pacity, it will just exceed capacity of its nearest competitor, BP Amoco. With "common values and common outlooks," Raymond says, the merger was driven by a desire to enhance share- holder value, maintain leadership in key businesses, and combine functionally and geographically diverse operations. The two companies, Raymond explains, have a "synergistic portfolio of propri- etary technologies." Nevertheless, Noto adds, the compa- nies also had to "face facts" and realize that the days of "easy oil" and "easy cost savings" are over. Despite tremendously tough market conditions characterized by low prices for downstream products, low or nonexistent margins, and plum- meting oil prices, Noto emphasizes that "this is not a combination based on des- peration; it's one based on opportunity." The combination will, the executives believe, provide a complete portfolio of petroleum and petrochemical operations worldwide, an enhanced ability to com- pete globally against international majors and government-owned oil companies, and expanded financial, technological, and human resources. They also expect the merger to offer $2.8 billion in annual pretax cost savings by its third year. The bulk of these sav- ings is to come in two areas: about $1.15 billion from the rationalization of overlapping businesses and programs and $730 million in organizational efficien- cies. They expect to cut about 9,000 as- yet-unspecified jobs out of 122,700 total. The two executives refuse to specu- late on possible asset sales due to overlap or divestitures that regulators might re- quire. However, they fully expect the deal to undergo much scrutiny before its expected close in mid-1999. Ann Thayer ... much smaller deal begets a top specialties firm... T he combination of two European in- dustrial conglomerates—Germany's Viag and Switzerland's Alusuisse Lon- za Group (Algroup)—will create, almost as an afterthought, one of the world's top five specialty chemical companies. Under a merger announced on Nov. 27, Viag and Algroup will combine into a new German company, to be named lat- er, that is owned 65% by Viag sharehold- ers and 35% by Algroup shareholders. With a combined $313 billion in sales last year—$24.4 billion from Viag and $6.9 billion from Algroup—the firm will rank as the sixth-largest industrial group in Germany once the deal is completed in August 1999. In chemicals, the deal brings Viag's SKW Trostberg and Th. Goldschmidt units together with Algroup's Lonza divi- sion. Combined chemical sales last year were $5.9 billion, $4.5 billion from Viag and $1.4 billion from Algroup. Algroup Chief Executive Officer Sergio Marchionne told reporters at a press con- ference in Zurich that the new company will have "critical mass" in a European spe- cialty chemicals industry that is increasing- Marchionne (left) and Simson shake hands on merger deal. ly consolidating. Marchionne will be depu- ty CEO of the company; Viag Chairman Wilhelm Simson will be CEO. But despite the chemical heft, the merger seems to have been precipitated mostly by synergies in other areas—name- ly aluminum, where both companies have businesses of roughly the same size, and glass and plastic packaging, where Viag is about a third larger than Algroup. The new company will also include Viag's en- ergy and telecommunications businesses. Executives expect that by combining production, purchasing, and sales in alu- minum and packaging, they will yield a yearly savings of $340 million, after one- time costs of about $240 million. In addi- tion, about 2% of a workforce of 127,000 will be laid off. In contrast, the three chemical com- ponents will continue to operate sepa- rately, at least for the near term. SKW and Goldschmidt will report to Simson, and Lonza will report to Marchionne. Indeed, all three are considered spe- cialty chemical makers, but they share lit- tle overlap in chemistry or end markets. Lonza produces fine chemicals for the pharmaceutical and crop-protection in- dustries and is a lead- er in custom synthe- sis. SKW is the world's leading pro- ducer of gelatin and chemicals for the con- struction industry. Goldschmidt produc- es silicone-, tin-, and oleochemical-based products for industri- al and personal care applications and is ac- tive in environmental engineering. Michael McCoy DECEMBER 7, 1998 C&EN 11

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Page 1: much smaller deal begets a top specialties firm

headquarters for down­stream business. World­wide upstream and chemical businesses will be head­quartered in Houston, with Exxon Senior Vice President Rene Dahan in charge of chemicals.

Chemicals are an area of "good strate­gic fit" with product lines that align well, says Raymond, a Ph.D. chemical engi­neer. The combined chemical businesses have annual revenues of $17.5 billion based on production from 65 worldwide manufacturing sites. A business plan for the chemical operations has yet to be outlined, but the fate of the companies' competing petrochemical ventures in Singapore is already being questioned. Both companies also have major re­search sites in New Jersey.

Exxon Mobil will lead in global olefins capacity, at 10.9 million metric tons, moving ahead of Shell and Dow. Like­wise, it will surpass those two compa­nies with 6.2 million metric tons of com­bined polyethylene and polypropylene capacity. And with about 2.2 million met­ric tons, or 14%, of global p-xy\ene ca­pacity, it will just exceed capacity of its nearest competitor, BP Amoco.

With "common values and common outlooks," Raymond says, the merger was driven by a desire to enhance share­holder value, maintain leadership in key businesses, and combine functionally and geographically diverse operations. The two companies, Raymond explains, have a "synergistic portfolio of propri­etary technologies."

Nevertheless, Noto adds, the compa­nies also had to "face facts" and realize that the days of "easy oil" and "easy cost savings" are over. Despite tremendously tough market conditions characterized by low prices for downstream products, low or nonexistent margins, and plum­meting oil prices, Noto emphasizes that "this is not a combination based on des­peration; it's one based on opportunity."

The combination will, the executives believe, provide a complete portfolio of petroleum and petrochemical operations worldwide, an enhanced ability to com­pete globally against international majors and government-owned oil companies, and expanded financial, technological, and human resources.

They also expect the merger to offer $2.8 billion in annual pretax cost savings by its third year. The bulk of these sav­ings is to come in two areas: about

$1.15 billion from the rationalization of overlapping businesses and programs

and $730 million in organizational efficien­cies. They expect to cut about 9,000 as-yet-unspecified jobs out of 122,700 total.

The two executives refuse to specu­late on possible asset sales due to overlap or divestitures that regulators might re­quire. However, they fully expect the deal to undergo much scrutiny before its expected close in mid-1999.

Ann Thayer

... much smaller deal begets a top specialties firm...

The combination of two European in­dustrial conglomerates—Germany's Viag and Switzerland's Alusuisse Lon-

za Group (Algroup)—will create, almost as an afterthought, one of the world's top five specialty chemical companies.

Under a merger announced on Nov. 27, Viag and Algroup will combine into a new German company, to be named lat­er, that is owned 65% by Viag sharehold­ers and 35% by Algroup shareholders. With a combined $313 billion in sales last year—$24.4 billion from Viag and $6.9 billion from Algroup—the firm will rank as the sixth-largest industrial group in Germany once the deal is completed in August 1999.

In chemicals, the deal brings Viag's SKW Trostberg and Th. Goldschmidt units together with Algroup's Lonza divi­sion. Combined chemical sales last year were $5.9 billion, $4.5 billion from Viag and $1.4 billion from Algroup.

Algroup Chief Executive Officer Sergio Marchionne told reporters at a press con­ference in Zurich that the new company will have "critical mass" in a European spe­cialty chemicals industry that is increasing-

Marchionne (left) and Simson shake hands on merger deal.

ly consolidating. Marchionne will be depu­ty CEO of the company; Viag Chairman Wilhelm Simson will be CEO.

But despite the chemical heft, the merger seems to have been precipitated mostly by synergies in other areas—name­ly aluminum, where both companies have businesses of roughly the same size, and glass and plastic packaging, where Viag is about a third larger than Algroup. The new company will also include Viag's en­ergy and telecommunications businesses.

Executives expect that by combining production, purchasing, and sales in alu­minum and packaging, they will yield a yearly savings of $340 million, after one­time costs of about $240 million. In addi­tion, about 2% of a workforce of 127,000 will be laid off.

In contrast, the three chemical com­ponents will continue to operate sepa­rately, at least for the near term. SKW and Goldschmidt will report to Simson, and Lonza will report to Marchionne.

Indeed, all three are considered spe­cialty chemical makers, but they share lit­tle overlap in chemistry or end markets. Lonza produces fine chemicals for the

pharmaceutical and crop-protection in­dustries and is a lead­er in custom synthe­sis. SKW is the world's leading pro­ducer of gelatin and chemicals for the con­struction industry. Goldschmidt produc­es silicone-, tin-, and oleochemical-based products for industri­al and personal care applications and is ac­tive in environmental engineering.

Michael McCoy

DECEMBER 7, 1998 C&EN 1 1