Chemical & Engineering News

May 5, 1997

Copyright © 1997 by the American Chemical Society

With $231 billion in sales, these companies continue to be shaped by mergers and acquisitions, but without a megadeal

George Peaff
C&EN Northeast News Bureau

Many investors, and the public at large, consider the U.S. chemical industry to be a mature, slow-growth, and conservative industry. But the companies that make up the U.S. chemical industry demonstrated their resilience, competitiveness, and creativity in 1996.

The companies that make up C&EN's Top 100 U.S. chemical producers in 1996 exceeded $230.5 billion in sales, compared with $231.2 billion in sales these same companies posted in 1995. The number of companies suffering lower sales - in dollar volume - was 40 in 1996, compared with just nine in 1995. Impressive gains in sales posted by several companies helped maintain the overall health of the industry.

Generally, U.S. petrochemical and plastics producers saw the cost of petroleum-based raw materials rise in 1996, but competitive pressures limited their ability to pass those higher costs on to customers. In many cases, those customers were U.S. specialty chemical producers - whose costs were relatively lower. And most chemical producers, both basic and specialty chemical makers, benefited from the moderate but steady growth of the U.S. economy in 1996, helping the companies maintain production volumes.

For the second consecutive year, Dow Chemical is the largest U.S. chemical maker, with its 1996 sales nearing $19.0 billion. In 1995, Dow's sales were $19.2 billion. DuPont remained second, but herein lies a complexity of putting together the Top 100. Because DuPont includes its agrochemical sales within its diversified businesses segment, which includes pharmaceuticals and other businesses, those sales are not tallied in the Top 100.

Therefore, DuPont's $18.0 billion in reported 1996 chemical sales - more than 2% less than in 1995 - does not reflect all the chemicals produced by the company.

Other companies also report chemical sales within nonchemical segments, undercutting their reported chemical sales or making their inclusion in the Top 100 impossible. For example, PPG Industries reports its paint sales within its coatings and resins segment, which had sales of $1.76 billion in 1996. And U.S. and foreign-owned companies that don't break out any chemical sales from their other products can't be considered for the Top 100. Such U.S. companies include Baker Hughes - which is in the process of acquiring Petrolite - Procter & Gamble, and 3M. Foreign-owned companies that don't break out their U.S. chemical sales include Air Liquide (France), Bayer (Germany), BOC and English China Clays (U.K.), and Nova (Canada).

Among the Top 100 chemical producers, 48 U.S.-based chemical companies - defined by C&EN as having 50% or more of their sales stemming from chemical production - accounted for 46% of the total sales in 1996 of the Top 100, matching 1995. Another 19 U.S. companies with diversified or other core businesses had 19% of the total chemical sales in 1996, again matching 1995. The 11 U.S. petroleum and gas producers manufactured 17% of the chemicals made by the 100 companies, slightly higher than the 15% share they held last year. The 22 foreign-held companies that produce chemicals in the U.S. among the Top 100 accounted for 18% of chemical sales in 1996, compared with the 20% share they had in 1995.

Several companies from the 1995 Top 100 do not appear in this year's compilation, most significantly Ciba U.S., which, with its merger with Sandoz to form Novartis, did not break out U.S. chemical sales as it had in the past. Novartis includes the pharmaceutical and agrochemical businesses of the merged companies, and Ciba's specialty chemicals businesses have been spun off as a separate company, Ciba Specialties.

Both OSi Specialties and Uniroyal Chemical have exited the ranking, having been merged into Witco and Crompton & Knowles, respectively. ChemFirst, formerly First Mississippi, and Calgon Carbon have dropped off the list because their chemical sales no longer rank them within the 100 threshold. ChemFirst sold its fertilizer business to Mississippi Chemical in 1996. Germany's Condea Vista declined to take part in this year's ranking.

Among the six new companies that joined the ranking, Germany's Henkel will grow in 1997 because it has completed the takeover of Loctite, which makes its last appearance in the Top 100. Another newcomer to the ranking, Canada's Potash Corp. of Saskatchewan, has acquired Arcadian Partners, which will also exit the ranking. Other new companies include the U.K.'s British Petroleum, which in years past has not published its U.S. chemical sales, and Belgium's DSM.

Another company listed in the 1995 Top 100 - the U.K.'s Hanson - spun off its chemical businesses to form a new U.S.-based company, Millennium, which makes its debut at No. 24 in the 1996 ranking.

The two U.S.-based newcomers are Bush Boake Allen, the flavors and fragrance spin-off that was once part of Union Camp, and McWhorter Technologies, a maker of liquid coatings, powder-coating resins, and composite polymers.

There are two new companies among the 10 largest firms in 1996. Eastman Chemical and BASF Corp. - the U.S. arm of Germany's BASF - have moved up in the rankings, ousting petrochemical producers Mobil and Occidental Petroleum from that elite group. Mobil's sales were just more than $3 billion, a 51% decline from 1995, which reflects the sale of its plastics business to Tenneco, among other things. Occidental's chemical sales were $4.48 billion, a 17% decline.

Other companies with double-digit sales declines include Albemarle (31%), Sterling Chemicals (23%), Georgia Gulf (17%), Zeneca (14%), Geon (10%), and Shell Oil (11%). For Albemarle, the decline was tied to the sale of its olefins business, while the others - excluding Zeneca - fell victim to the rise in petrochemical feedstock costs.

Conversely, several companies posted healthy sales rises. Praxair, by virtue of its acquisition of CBI Industries, broke into the 20 largest firms with sales of $4.45 billion, up 41% from 1995. IMC Global, through its merger with Vigoro, had sales of $2.98 billion, up 55% from 1995. Potash Corp.'s acquisition spree resulted in a 129% expansion in 1996 sales, which topped $1 billion. Other companies with double-digit sales growth include BetzDearborn (38%), with its acquisition of W.R. Grace's water treatment chemicals business; Mallinckrodt (32%), because it acquired J. T. Baker; Witco (22%); Engelhard (21%); Ethyl (20%); Henkel (16%); and Farmland Industries (14%).

Mallinckrodt's No. 97 ranking based on chemical sales of $332 million looks like an anomaly considering it was ranked No. 80 in 1995 with sales of $577 million. But for 1996, the company considered its Tastemaker joint venture with Hercules as a discontinued operation, and it restated its 1995 sales to reflect that status. The sale of Tastemaker, which produces flavors, to Switzerland's Roche was completed in April.

Dow again had the largest chemical operating profits at $3.362 billion, but those profits were 21% less than in 1995. DuPont was again second at $3.361 billion, down just 1% from 1995. At the extremes, Potash Corp. had a 118% rise in operating profits over 1995 to $186 million in 1996, and petrochemical and plastics producer Borden Chemicals' operating profits declined 86% to $28.5 million in 1996.

About one-fifth of the companies on the list had double-digit increases in operating profit: AlliedSignal, BetzDearborn, Cytec Industries, Engelhard, Ethyl, Ferro, H. B. Fuller, GenCorp, General Chemical, W.R. Grace, Hercules, IMC Global, Laporte, Mallinckrodt, McWhorter Technologies, Olin, Petrolite, Praxair, Rohm and Haas, Stepan, Unocal, and Witco.

Of the 82 companies that reported chemical operating profits in the ranking, 43 companies posted lower profits than the year before. Reported operating profits totaled $29.4 billion in 1996, compared with $37.1 billion in 1995. Firms with double-digit declines in operating profits include Albemarle, Amoco, Arco Chemical, BP America, Chevron, Eastman Chemical, Exxon, Fina, Geon, Georgia Gulf, Great Lakes Chemical, Hoechst Celanese, International Flavors & Fragrances, Kerr-McGee, Lyondell Petrochemical, Millennium, Mobil, Monsanto, NL Industries, Occidental Petroleum, Phillips Petroleum, Rexene, Shell Oil, Sterling Chemicals, Sun Co., Terra Industries, Union Camp, Union Carbide, and Wellman.

Fertilizer producer Terra Nitrogen topped both the operating profit margin (48%) and return on chemical assets (56%) categories in 1996. It topped the operating profit margin category in 1995 as well and was fourth in return on chemical assets in 1995. Its sister company, Terra Industries, was again second in operating profit margin at 35%; and Unocal, which also produces agrochemicals, became second in return on assets in 1996 (50%), jumping from its ninth spot in 1995.

Among the 20 companies with the best chemical operating profit margins, seven companies had higher profit margins in 1996 than in 1995 and 13 had lower profit margins. Unocal's chemical operating profit margin was 29%, compared with 22% in 1995, and its $152 million in 1996 chemical operating profit was 35% higher than in 1995. Hercules' operating profit was $441 million in 1996, an 11% gain from 1995, leading to a 1996 operating profit margin of 21%, compared with 18% in 1995. General Electric's chemical operating profit was $1.47 billion in both 1996 and 1995, but the firm increased its profit margin to 23% in 1996 from 22% in 1995. The other companies with higher chemical operating profits in 1996 than in 1995 were Freeport-McMoRan, General Chemical, International Specialty Products, and Sigma-Aldrich.

Six companies among the 20 with highest return on chemical assets (ROCA) posted gains in 1996 compared with 1995. Terra Nitrogen's 1996 ROCA of 56% was substantially greater than 1995's 28%. Unocal's ROCA was 50% in 1996, compared with 37% in 1995. Olin's 1996 ROCA was 20%, in 1995 it was 12%. Hercules' ROCA improved to 30% in 1996 from 27% in 1995. The other firms with higher ROCA in 1996 versus 1995 were GenCorp and General Chemical. Conversely, Lyondell Petrochemical's 1996 ROCA dropped to 22% from 47% in 1995, yet Lyondell remains in the best 20 for ROCA with its rank of 15.

So what's in store for 1997? Mergers and acquisitions in the U.S. chemical industry continue to play an active and important role in shaping the industry, but no "blockbuster deal" has occurred. Megamergers have shaken the pharmaceutical industry - although they have involved chemical companies - and the telecommunications industry. But they have not occurred in the chemical industry; at least not yet.



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