M&A Madness! Did Dow Stalk DuPont Last Fall?

The New York Times reports this morning that Dow Chemical made a bid to acquire DuPont last fall. The gem is included in a report that discloses that the SEC has launched an inquiry into whether two senior executives at Dow Chemical secretly tried to put the company into play as well as into the unusual trading in its stock that may have resulted.

But the inquiry, still in the informal stage, may also look at a deal that the company actually pursued, the Times reports. Last fall, Dow made an overture to acquire DuPont in a deal worth more than $40 billion, according to people involved in the talks.

DuPont rebuffed the advance and never engaged in negotiations, the Times says. The article notes that Dow CEO Andrew Liveris, sits on the board of Citigroup with Alain J. P. Belda, the CEO of Alcoa, who at the time of the overture was also a director of DuPont. Belda stepped down from DuPont’s board in March.

UPDATE (12:10 p.m.):
Dow has declined comment on the possible SEC investigation, as well as whether it made an approach to DuPont last fall.

DuPont's statement is below:
"We have seen today’s New York Times article on Dow Chemical and have no comment," DuPont said. "We are fully focused on our strategic plan, which is showing strong results. DuPont recently completed an 8-year transformation into a science company focused on sustainable growth. More than 25 percent of the company is now in a leading position in high value-added, non-cyclical businesses in bio-sciences, agricultural and industrial biotechnology and biofuels. Our science-based products and services are targeted to global markets including agriculture, transportation, construction and safety and protection."

Making Green Pay Off

Chemical makers are ramping up green chemistry efforts, spurred by many factors, including regulation, a desire for renewable feedstocks and materials, and public demand for greener and more environmentally friendly products. One challenge for producers, however, is that customers demand products that cost the same as traditional materials. This makes it tough for producers to cover the cost of development. “Customers want a green product but say I’m not going to pay a penny extra,” Rohm and Haas v.p. and chief technology officer Gary Calabrese, told attendees at a Société de Chimie Industrielle meeting on innovation held in New York last month. “They will take it if it’s free.” Attitudes may be starting to shift, however, he adds. “Things may be changing, but it is still too early to tell how sustainable that really is,” Calabrese says. For now the green label serves as a “tie breaker.” Customers do lean toward green products all else being equal, but it is not clear that they are willing to pay more just yet.
Proponents of green chemistry argue that financial benefits will become clear as development progresses. “Companies realize that now the issues of environment and human health can add to innovation, profitability, and competitiveness rather than being a cost drain,” Paul Anastas, a green chemistry pioneer, and director at Yale University’s Center for Green Chemistry and Green Engineering tells CW in our cover story this week. Regulations have in the past driven companies to develop environmentally friendly products, but the driver is now changing, he says. “Green chemistry is trying to go far beyond, through innovation, to make these regulations less relevant.”

Sabic to Acquire GE Plastics

Sabic is very near a deal to acquire GE Plastics, sources tell CW. A formal announcement is expected by Monday, May 21. Bidding for the business was near $11 billion, according to financial sources. Other finalists in the bidding for GE Plastics included private equity firm Apollo Management (New York) and Basell. GE said last month that it expects to announce a definitive agreement on the sale of plastics in the second quarter, and hopes to close the transaction in the third quarter.

Comment: Where Have All the Students Gone?

By Jorge Buhler
As I was reading your “Where have all the students gone?” note I was thinking “What the industry needs to do is pay better”. Students as a whole are rational beings, pay counts. I am glad you bring it up too.Another factor, soft but an important one, is professional prestige. In the US, for whatever reasons, engineering in general is a low prestige profession (usually not even listed as a profession), where in other parts of the world is a prestigious profession, sometimes the most prestigious one.

A Call to Step Up Process Safety

The American Section of the Société de Chimie Industrielle awarded its Palladium Medal last week to Nova Chemicals president and CEO Jeff Lipton, a deserving honor for one of industry’s most passionate, tireless, and effective advocates. During his acceptance speech, Lipton called on industry to focus more attention on the critical issue of process safety, urging companies to measure and publicly report uncontrolled process fires as well as loss of process containment incidents.
Citing the catastrophic explosion at BP’s Texas City, TX refinery two years ago, Lipton said: “I would bet that there isn’t a management team, CEO, or board of directors of a refining or chemical company that hasn’t studied the reports and then said, in one way or another, ‘That, but for the grace of God, could have been our facility or our employees.’”
Lipton also recounted experiences at Nova. Soon after joining the company from DuPont in 1993, he visited each site and “came away quite shaken from one.” The plant, using a process that involves a flammable solvent under high temperature and pressure conditions, had suffered process fires every few weeks. “In my mind the leaders of that plant had been lucky-—very lucky—that they hadn’t yet had a time when they had a fire, and the conditions in and around the plant had, because of some other accident or mistake, become susceptible to an explosion.” Lipton took action, measuring each incident across the company and tying incentive compensation to improvement.
One “leading indicator” for fire safety was “loss of process containment. It became pretty obvious—if we keep all materials from leaking out of pipes, pumps, valves, process vessels, and storage tanks—there will be no uncontrolled process fires even in the most dangerous operation,” Lipton says. “That plant that had a fire every few weeks for many years, last had one in 2003,” he says. “Process safety improvement will reduce the number of catastrophic explosions, reduce environmental risk, and also make our operations more energy efficient. Not a bad result for paying attention to one new set of data.”
Quick action on the issue would befit Lipton’s legacy as one of industry’s leading statesmen. “I will feel fully deserving of the International Palladium Medal when we are successful in getting the ACC, and then related associations around the world, to begin to require members, as part of our tremendously successful Responsible Care program, to measure and publicly report loss of process containment and uncontrolled process fires.”

Will Basell Owner Put Lyondell in Play?

Russian industrialist Leonard Blavatnik, who controls Access Industries, the owner of Basell, has purchased the right to acquire an 8.3% stake in Lyondell Chemical. Blavatnik signed a forward contract with Merrill Lynch that grants him the option of purchasing about 21 million Lyondell shares at $32.11/share, or $674 million. Merrill Lynch has hedged its exposure by agreeing to acquire Occidental Petroleum’s 8.3% stake in Lyondell, in a deal that closed on May 9. Blavatnik says that he “may seek to engage in discussions with [Lyondell] concerning, among other possible scenarios, the merits of an offer to acquire all of [Lyondell] and the merits of a merger, combination or similar transaction between the [Lyondell] and affiliates… , including Access Industries or Basell.” Access Industries had not had formal discussions on this investment with Lyondell prior to the agreements, according to sources close to Access Industries. Blavatnik is expected to attempt to call Lyondell CEO Dan Smith later today, according to those sources. Access is also a leading candidates to acquire GE Plastics, financial sources tell CW. Could Blavatnik be assembling an integrated chemicals giant? Lyondell would provide Basell's operations with propylene and ethylene, and GE Plastics with benzene and styrene.

Dow: Kreinberg says Liveris Viewed Him as "Threat"

A lawsuit filed by former Dow Chemical executive v.p. Romeo Kreinberg today charges that Dow chairman and CEO Andrew Liveris threatened to fire Kreinberg if he did not adjust his “negative body language” and “attitude,” just three weeks before Dow canned Kreinberg and former CFO Pedro Reinhard charging that both “were involved in unauthorized discussions with third parties about the potential acquisition of the company.” Kreinberg’s suit alleges that Liveris viewed Kreinberg as a “threat,” and “manufactured a more expedient basis to follow through on his threat” by claiming that Kreinberg and Reinhard were in unauthorized discussions to sell the company. Reinhard has also filed suit today, charging Dow with libel.

Where Have All the Students Gone?

By LYN TATTUM (Publisher and group v.p., Chemical Week)
It is no secret that the chemical industry fears skilled labor shortages in the coming years, as students shrink away from studying science, and those that do graduate in chemistry or chemical engineering lean towards more glamorous sectors such as IT, biotechnology, or finance. This trend has often been attributed to the continuing poor image of the chemical industry, which wrestles with environmental, security and other “green” issues. As a recent cover story by Esther D’Amico discusses, Talent Management is increasing in vogue among chemicals companies. At the other end of the scale, the baby boomers who found the new chemical industry of the 1970s and 1980s so exciting are facing retirement. They cannot be easily replaced.
In the U.K., the number of secondary school students taking chemistry has fallen by 37% in the last ten years. This means that almost 15,000 fewer students have taken the subject.
At university level, the number of undergraduates taking chemistry has fallen 25% - a decline of about 1,000 students. Even more shocking, over the last seven years almost 70 university science departments have closed, according to recent data from the Confederation of British Industries (CBI). Over the next seven years, the UK needs to double the number of graduates with science, engineering, and technology degrees, or sectors such as pharmaceuticals, biotechnology – let alone the diminished UK chemical industry – will be in peril.
Many companies are now reaching out to students on an individual level. Nance Dicciani, President and CEO at Honeywell Specialty Materials, says her message is: “It’s possible for someone to come to the chemical industry and have an impact.”
The ability to affect our future via chemistry ought to be a huge attraction for young people, not a turn off. At Chemical Week, we are focusing on efforts to educate people about the benefits of a career in science, and its role in our global economy. If you have particular examples, please post your comments or email them to letters@chemweek.com.

Where Have U.S. Volumes Gone?

One of the more notable features of first-quarter results has been the ability of producers to maintain earnings strength despite poor U.S. markets. The primary cause of U.S. weakness is sluggish housing and automotive markets, which have hurt demand across key sectors such as coatings and plastics.
Dow Chemical, for instance, reported a 7% first-quarter volume decline in the U.S., compared to the same year-ago quarter. DuPont reported a 1% decline in U.S. volumes. PPG Industries says that volumes in the U.S. and Canada grew only 1%.
U.S. indicators are showing positive signs, which bodes well for the rest of the year. Railcar loadings, an important indicator of current industry activity, have turned positive again with the 13-week average through late April up 3.4% from the year-ago period. “Year-over-year gains in railcar loadings are encouraging, as were the 3,600 production workers added to chemical industry payrolls during April,” ACC says. Several key resins, with the notable exception of polyvinyl chloride, which is tied to housing, reported strong growth in March as well, ACC adds.
Producers remain optimistic despite sluggish U.S. markets, noting that the overall global economy remains sound. PPG CFO William Hernandez said as much last month to analysts after first-quarter earnings: “Our current expectation of stable economic conditions gives us continued optimism regarding the prospects for our businesses.” Dow Chemical sounded a similar note on global conditions in quarterly regulatory filings last week. “Global GDP growth is expected to be quite healthy in 2007, above 3%,” Dow says. “The U.S. is expected to show slower growth than in 2006, principally because of weakness in residential construction and the automotive industry, although growth may improve later in the year as these industries stabilize.”

Some Forward-looking Statements

By ROB WESTERVELT (Editor, Chemical Week)
Chemical makers delivered first-quarter earnings that were in line with expectations, with a few exceptions, as robust growth in Asia and Europe offset U.S. housing and automotive weakness
(p. 7). Results strengthened, however, as the first quarter progressed and executives presented upbeat outlooks in discussions with investors.
“We continue to expect global GDP growth to be healthy in 2007, above 3%, but with North America slower this year than last year, principally the consequence of weakness in residential construction and the auto industry, and some weakening consumer spending,” Dow Chemical executive v.p. and CFO Geoffery E. Merszei said last week. “Europe should be strong, particularly in the emerging countries of Eastern Europe. Japan should continue to see steady growth, and growth in China is expected to once again be very strong,” Merszei says. Supply/demand balances should remain healthy, notably in the ethylene chain, although capacity start-ups in chlor-alkali will begin to impact those margins later in the year, Dow says. “Strong demand and good pricing momentum have continued through April, reinforcing our view that 2007 will be another solid year for the company,” Merszei adds.
DuPont said last week it was expecting “modest volume gains as growth outside the U.S. and strong agricultural seed markets outweigh lower demand from the U.S. housing and automotive markets.” Overall, energy and raw material costs in 2007 will continue to be about equal to 2006, it adds.
It appears that ethylene/polyethylene profitability turned the corner in March prompting bullish outlooks from petrochemical makers. “Fundamentals for ethylene and propylene oxide are as strong as they have been over the past couple of years, particularly for ethylene,” Lyondell president and CEO Dan Smith said last week. Weak first-quarter petchem margins resulted from a transition between falling fourth-quarter 2006 prices and the price recovery now under way. “Margins seemed destined to continue to be volatile, but in a good zone,” Smith says.
Inventory build-ups at the end of the fourth quarter hurt early 2007 results, but volumes and margins rebounded late in the quarter, says Nova Chemical president and CEO Jeff Lipton. “March was spectacular compared to January and February. We had a March that would be equivalent to the kind of numbers that we saw in the strong months last summer. Very strong Ebitda generation, and very strong sales.”
Overall trends are still strong despite U.S. weakness, an indication that, in this case at least, future industry results should not differ materially from what is forecast.