much smaller deal begets a top specialties firm
TRANSCRIPT
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