Nalco looking at options for its paper chemicals business

In a recent FT article, it was reported that Nalco, is evaluating its paper services division and could sell or swap the business by year-end.

”The paper services part of our business likely needs some consolidation,” Bushman said. ”It’s really tied to what’s going on in the paper industry in North America and Europe... the paper makers, which are our customers, have been swapping and consolidating their assets, and production levels have not been going in the right direction [in these regions]” for the paper chemicals and services suppliers.

It is speculated that Nalco could swap its paper services assets with those of another company by the end of 2008. Nalco’s paper services division is USD 780 mio or about 20% of Nalco’s annual revenues.

”Within the year, we’d like to have an idea of what role, if any, Nalco will play” in the paper chemical supplier market’s necessary consolidation, Fyrwald, Nalco's CEO stated.

The article goes on to say that the formation of a joint venture in Nalco’s paper division or the divestiture of Nalco’s European paper business were both more likely than the sale of the entire division.

It is clear that consolidation of the North American and European paper chemicals business is required and it would not surprise me if the suitors would appear from the Middle East (oil based but need the product technology); China (growth market and again would like the technology); or even India (looking to expand). The recent acquisition of Hercules by Ashland does not start to meet the level of consolidation which is required.

According to a report published last week by this news service, listed Germany-based chemical holdings giant BASF SE is looking to make an acquisition in the specialty chemicals space. When asked whether Nalco’s paper services division could be attractive to BASF, Bushman said he did not see it as an ”obvious” fit since paper is currently a ”very small part” of BASF’s operations, but added it is possibly an area into which the company could expand.

The last few weeks has seen considerable movement in the paper chemicals market with the following recent changes or press announcements:

• Ashland acquire Hercules
• Dow acquire Rohm and Haas
• Ciba looses patience with paper chemicals
• Clariant vulnerable to take-over
  

Kemira is the current market leader and they publish their half-year results on Wednesday - there are no high expectations and it is unlikely that any good news will emanate. The expectation now is that there will be considerable movement and further consolidation in the paper chemicals market.

Watch out for the Chinese and Middle Eastern companies!