Ciba looses patience with poor perfoming paper chemicals business

In a Bloomberg interview, Ciba Holding AGs CFO, Juerg Fedier stated that they, '..... have been sliding with paper for years, implementing corrective measures. .......... You can't afford to carry businesses for years that are not earning the cost of capital.' In the strongest public statement yet, Ciba suggested that they may sell the unprofitable paper chemicals and inks businesses and focus on the better-performing coatings and pigments businesses.

Ciba has made a number of acquisitions intended to strengthen its paper chemicals business, in particular the gain of about 400 million euros ($635 million) in annual sales from the purchase of Raisio in 2004. Ciba has failed to effectively integrate the acquired businesses and show improvements in margins. Coupled with the economic downturn, competition from China and India, soaring raw material and energy costs, Ciba's paper business has been unable turn things around. A number of personnel changes in key positions have not helped their cause.

It is difficult to know what is going on behind the scenes and where the press comments are targeted, but it is certainly a nervous time for Ciba's paper business (especially if you are an employee). A comment in the Bloomberg article states that, 'Selling the paper chemicals business would lead to massive write downs and jeopardize their credit rating.' Parts of Ciba's paper chemicals business would be valuable add-ons to other paper chemical suppliers, but it is doubtful that anyone would be interested in the entire business.

Both of the Swiss-based paper chemicals companies, Ciba and Clariant, are finding it tough in the current market environment, and one has to question the viability of locating businesses such as these in a high-cost base such as Switzerland (despite the tax advantages). It would be interesting to have a crystal ball and see what the paper chemicals competitive landscape will look like in one year from now.