Clariant sells its paper chemicals business after years of strategic drift and wandering.

Following earlier announcements that Clariant will off-load its unprofitable businesses, it has now been announced that agreement has been reached with US PE firm, SK Capital, to sell its paper business (and textiles, emulsions).  The sale amounts to about CHF 502 million, of which approximately CHF 460 million will be cash.  This is said to be equivalent to 6.3 times the estimated full year 2012 recurring EBITDA.  It is now a matter of waiting for regulatory approval.

This ends Clariant's years of strategic drift and wandering in businesses which had increasingly moved from being specialities based in high-cost countries, to more commodity-based businesses where quality competition from China and India had started to dominate.

It will be interesting to see what SK Capital do with these businesses ....... there are certainly many opportunities for improvements in costs, operation and strategy.  Further divestment of businesses and IP could also bring reward to SKC.

Clariant's announcement --> click here

Clariant beats expectations and shows 3Q09 profit. Paper chemical business remains weak.

Clariant reported its third quarter 2009 results and overall the company showed better than expected performance, showing a profit driven by restructuring and a higher capacity utilisation. 3Q09 Sales were down 14% in local currencies and 19% in Swiss Francs. The high Euro high Swiss Franc situation had a negative impact on the results.

Details of Clariant's performance are given on their web site.

In the webcast, Patrick Jany stated, 'The paper business remains weak and shows no sign of improvement'.

Clariant a target for Solvay's cash?

After Solvay sold its drug unit, Abbott, on Monday for EUR4.5 billion, speculation has started as to what Solvay will spend the money on. In a Reuters article, it was pointed out that the ailing Clariant could be a target.

Clariant's share price rose by as much as 4% on the back of the speculation, but many analysts remain sceptical.

Clariant sells USA silicone business

Clariant has sold its silicone business based in Gainesville, Florida to SiVance LLC, an affiliate of GenNx360 Capital Partners, a private equity comany. This has little impact on Clariant's paper chemical business.

Clariant experience 'massive' decline in sales for 1H09

Clariant announced their first half 2009 sales with a degree of honesty which was unusual for the conservative Swiss company:

'Despite persistent poor business conditions resulting in a massive decline in sales, the Textile, Leather and Paper Chemicals Division returned to profitability at the operating level. Sales dropped 22% in local currencies and 25% in Swiss francs.'

The outlook? As we have stated before, this is a watershed year for the paper chemicals business which requires new vision and leadership.

Some recent reports (see bloomberg.com):

22-Jun-09: Clariant, the world’s largest maker of chemicals used in printing ink based in Muttenz, Switzerland, said on June 22 it plans to cut additional jobs on top of 1,350 reductions announced earlier this year.

02-Jul-09: Clariant AG dropped 8.6 percent to 6.36 Swiss francs for the biggest decline on the Stoxx 600. The world’s largest maker of chemicals plans to sell 225 million francs ($209 million) of convertible bonds.

13-Jul-09: Clariant, The world’s biggest maker of chemicals used in printing ink expects monthly profit of as much as 18 million Swiss francs ($16.6 million) in the “coming period,” Finanz & Wirtschaft said, citing an interview with Chief Executive Officer Hariolf Kottmann. Clariant will probably cut more jobs this year and in 2010 before restructuring is complete, he said.

30-Jul-09: Clariant, the world’s biggest maker of chemicals used in printing ink reports first-half earnings. The shares rose 2.1 percent to 6.96 francs.

BASF to place Paper Chemicals HQ in Basel

BASF has announced that from July 1, 2009, BASFs Paper Chemicals operating division will be based in Basel together with two associated business units: Coatings & Starch Europe and Wet End Chemicals.  The cynic would say that this is another tax-dodging ruse followed by other companies such as Hercules and Clariant where repatriation to Switzerland has saved paying higher taxes in Europe; on the other hand, BASF had to make some promises to Ciba and Switzerland that in acquiring Ciba, some major businesses would remain in Switzerland.   Basel was the HQ for Ciba's paper business.

The details are available on the BASF web site including the overall plans for the Basel site - Research Centre; European Plastics and Additives Business Unit; and the Business Centre Switzerland.   

Clariant North America acquires defoamer business

Three months ago, Clariant USA fomed an exclusive strategic alliance to service the world-wide foam control market, they have now announced that they will acquire XL Performance Chemicals from Fibro Chem LLC.  The terms of the deal have not been disclosed.

The aquisition has been made by Clariant's Functional Chemicals Division and although claims are made for Clariant's ability to now service the global foam control market, the reality is that any impact of the acquisition is likley to be in the Functional Chemicals Division and North America - Clariant does not have a good track record of working across divisional 'silos' or in exploting regional sucesses world-wide.

In the paper business Clariant does not have a presence or reputation in the process chemicals market so would be at a distinct disadvantage were it to try to use its current business model to exploit the defoamer market.  Clariant essentially has two functional paper product ranges - speciality dyes and commodity fluorescent whitening agents.  

The future manufacture of the acquired foam control agent products will continue in Greenville SC, USA under a toll manufacturing agreement.  As the business develops, Clariant has the option to transfer production world-wide and use its own facilities.

Clariant's share price has continued to edge upwards from the rock bottom CHF3.71 on March the 9th to just above CHF7 today - a good increase for the short-term trader but far short of the CHF20 range in mid 2007.  As we have stated before, this is a watershed year for Clariant.

Clariant continue decline - paper business lacks direction

A familiar story at Clariant, as the first quarter results are announced - this time with an air of resignation and an acceptance of reality. It is best to spare the details, but they are available on the Clariant web site and there are many analyst reports on the web. Sales declined 19% in local currencies and 24% in Swiss francs.

The only comment regarding the paper business was 'lower demand, significantly affected by inventory devaluation'. The reality is that in Clariant's key markets:

• The OBA market has declined and, as predicted in this weblog, Clariant is becoming less competitive in the market where competent, lower cost suppliers based in China and India have made inroads.
  
• A similar story in paper dyes - Clariant is a high-cost supplier with a declining market share.
• Other segments? Clariant has had to face reality - efforts to enter the emulsion polymer market were doomed to failure from the start and rumour has it that they have now embarrasingly had to abandon their efforts. There continues to be a lack of strategy in the paper business - someone to lead the business with modicum of market knowledge would be a start.

A watershed year for Clariant ............

Clariant ditch the past and prepare for the future - paper chemicals to be slplit off as a stand-alone unit

With its lack of strategic direction and slow decision-making, Clariant has found itself in a position where it needs now to make some decisive moves.  The complexity of its paper, textile and leather division (TLP) and their non-transparent interrelationships have made it hard for Clariant to off-load any of these businesses as a separate entity.  That said, it is hard to see how anyone would want to pay much for these heavily European-based (Germany and Switzerland) businesses - the share price has continued to free-fall, reflecting the value of Clariant.

In one of the changes, described in management speak as, 'enabling each business to be managed as a stand alone unit, providing the operational and strategic flexibility required to improve profitability',  Clariant is continuing the process of trying to separate the textile, paper and leather businesses from each other in the hope that any of them would be more attractive to a potential buyer.  Too little, too late is the view of many in the industry.

Simultaneously, Hariolf Kottmann, the CEO of Clariant, has retired- off Peter Brandenberg, who was seen as a temporary, Swiss establishment head of the TLP Division as the slow process of deciding on future options for change were made.  Brandenberg spent 38 years at Clariant!

In Brandenberg's place, Kottmann has unsurprisingly brought in an ex-Hoechst colleague, Mathias Lutgendorf as head of the TLP Division and a member of Clariant's executive committee. He will lead the continuing process of separating the paper, textile and leather businesses from each other.

Interestingly, Lutgendorf moves to Clariant from the private equity owned DyStar, a textile dyes and chemical producer, so there could be some thoughts of consolidation on the horizon.

Standard & Poor's and Moody's Negative on Clariant's Initiatives

Standard & Poor's have cut the credit outlook for Clariant to 'negative' from 'stable' and almost in the same breath, Moody's Investors Service has cut its rating to non-investment grade or 'junk'.

For details, go to the Bloomberg site.

Tick tock goes the Clariant clock ...... 2008 was no better!

Clariant has continued its now medium-term downward spiral, announcing another set of poor results for 2008.  Having spent millions on trying to cut its SG&A costs, used consulting company after consulting company, introduced an expensive (and inneffective price management system), suffered the indignity of the resignation of an effective CEO in Jan Secher ........ along came the economic downturn.  The Swiss/German clock has been ticking for a while and surely it is now time for Clariant to participate in the ongoing re-structuring of the chemicals industry in Europe. The share price continues to tumble and recommendations not to buy continue to haunt Clariant - the big issue is now whether anyone would want to buy some or all of Clariant. 

The impression is that the paper chemicals business remains rudderless, caught up in 'supporting' efforts aimed at helping the larger Clariant survive (especially in Germany and Switzerland) rather than helping the pulp and paper industry through the economic downturn.  The focus seems to be on cutting jobs, closing plants, and reducing R&D.  There is again very little mentioned of the Paper Business in Clariant's pitch to the media.  Waffle such as, 'The Paper Business held up relatively well in the economic downturn'. And, the old mis-management issue of the, '..... supply shortage resulting in escalating raw material costs in the Paper Business'.  This is covered in other blogs - the shortage was avoidable.  What is Clariant proposing to help its customers?  Higher prices, less service and support and fewer (cheaper and less competent?) people?

The end of year report goes on to say that, ' ...... restructuring efforts and cost-cutting measures, in particular in SG&A, proceeded as planned but were not sufficient to compensate for the capacity underutilization that worsened the gross margin.'  What management drivel.  No mention of the customer in all this stuff.  As expected, the exodus of key personnel has continued (willing or not).  The sad thing for the paper industry is that many have decided to go into other industries.

Clariant figures for 2008 are available on their web site.  An analysis is also carried by sites such as Bloomberg.

Clariant 'streamline' their board of management - time for change and decisions?

Clariant announced that it has 'streamlined' its board of management.  Watch this space? Will Clariant managment actually do something effective to save the ailing company or is this another piece of expensive window dressing?

ALTANA acquire Dick Peters from Clariant - wax emulsions and some paper chemicals

ALTANA has signed an agreement to acquire Clariant's Dutch wax additive manufacturer, Dick Peters BV,  from Clariant.  Dick Peters is a remnant of Clariant's acquisition of Hoechst in 1997 and specialises in wax-based formulations, although it does have a portfolio of paper chemicals, some of which are toll manufactured.  Their turnover is around EUR 24 mio.

Dick Peters will be integrated into BYK Cera BV which is part of the BYK Additives & Instruments Division of the ALTANA Group.

The sale of Dick Peters is part of Clariant's continued drive to cut costs and reduce its asset base in Europe.

Even "The Chemical Company", BASF finds the going tough - what of the rest?

BASF announced that it will temporarily close 80 plants world-wide and cut production at a 100 more in a move which will affect over 20,000 workers over the next two months.  In effect, BASF will reduce output by 25%.

Three weeks ago, BASF said it was coping with declining demand and that 2008 sales would top last year's EUR 97.5 bn with operating earnings matching 2007 (EUR 7.32 bn).  All has changed.  BASF has now issued a profits warning for this year. 

In the view of the FT and industry experts, the move by BASF is a pre-cursor to a huge bout of restructuring among Europen companies, including job cuts and factory closures.  

Where does this leave the paper chemicals industry?  

For the stong companies:

• BASF is in the process of acquiring Ciba on the wave of their gloomy announcements.  So, tough times for Ciba under their new masters.  
• Kemira - has recently announced significant lay-offs and a restructuring programme.
• Ashland and Hercules are well placed to take advantage of the current climate, further  investing in Europe would be folly, but they could help in the market consolidation.  However, a recent Forbes.com article puts Ashland in a different light - Trashland!
• Dow Chemical - announced last week that a fall in demand would force them into a restructuring before year end.

Then there are the question marks:

• Nalco - quiet at the moment but in need of a freshening up.  Their cost-cutting waves have left them rather thin on the ground.  Rumours abound.
• Clariant was struggling before the economic crisis - time to make some significant strategic and tactical moves? Don't hold your breath, but desperate times require desperate measures.  The share price is moving close to being considered a 'penny stock'.  Their leading global paper group (technical and manufacturing) in the UK is on schedule to shut before year end in what appears to be an attempt to protect their high-cost Swiss base.  A good move when the Swiss franc gains against sterling?!
• Eka Chemicals - solid in their protective Akzo Nobel net but again, the economic crisis may force some moves affecting paper chemicals which is not core business for the mighty Akzo.  The inability to sell National Starch has been a recent issue.
• Buckman - recently there has been news that this smaller company has struggled, but it is not beyond them to find an innovative way forward.  They are more agile than the larger companies.

As we have stated many times in this weblog, the Chinese paper chemical companies are well positioned to take advantage of the Chinese growth market and further squeeze the sluggish European and North American manufacturers, cutting down their options to show any future growth.

Difficult times, for sure, but there are opportunities for the sharp strategic thinkers.

3Q08 Results: Clariant show glimmers of improvement - paper chemicals still a problem.

Clariant announced its third quarter results for 2008 and there is a glimmer of improvement in the company performance, although the textile, leather and paper (TLP) business continues to be a problem.  The shares which had crashed to all-time lows showed some recovery.  Speculation continues that Clariant is preparing to be split up and that something will have to be done with the uncompetitive TLP business.

Clariant posted third-quarter net profits of CHF 78 mio compared to a loss of CHF 51 mio in the same period last year.  Sales decreased slightly to CHF 2.o9 bn and EBITDA increased from CHF 132 mio to CHF 198 mio.  So, some glimmer of improvement.

What of the paper business?  Buried in the TLP division, which continues to decline, there is little sign of a new strategy and leadership.  The only solution seems to be 'cost leadership' which is OK if you are a big volume producer.  The core business of OBAs and Dyes continues to face stiff competition and although the closures of Horsforth and Selby sites in the UK may help the TLP Division it does little to help the competitiveness of the paper chemicals business - moving production to high-cost Switzerland and loosing key personnel is not a recipe for a successful future.  There is little mentioned in the 3Q08 report about the paper business except for a statement, 'The bottom line of the Paper Business suffered from an unprecedented hike in raw material costs.'  Yes, there has been a big hike in raw material prices, but Clariant's 'unprecedented' position regarding dye and OBA raw materials is of their own making (see earlier blogs).

This next year will be the making or breaking of Clariant's paper business.

For another view: Yahoo Finance - Clariant Downgraded to "Sell"

Korttmann tries to console employees - Clariant is not for sale!

In an attempt to quash the tide of rumour, the new CEO of Clariant has written to employees with the message that Clariant will not be sold, broken up into pieces or merged (see the source article).  The main priority is to improve cash flow ...........

Employee letters such as these have little effect as everyone knows that Clariant has to do something to survive.  Clariant has been too late to make a significant strategic move in a chemicals industry that continues to need to consolidate, despite a number of recent events.  It has always appeared that paper chemicals is not a priority for Clariant and the recent move by BASF to acquire Ciba has left Clariant with few options to survive.

Just what will the new CEO do?  Can Clariant rise from the ashes without being sold, split up or merged?  Not likely!  Time for some clear and creative thinking -  break the mould Clariant.

See an earlier blog on Clariant being broken up ............

Paper whiteness - Clariant's OBA crisis!

Clariant has tried to make a case for the current situation in the global OBA (optical brighteneing agent) business (see the recent RISI article) referring to it as an 'OBA Crisis'. It is well worth reading the views expressed in the article but we would leave it to you to make a judgement on the position taken.

First, Clariant has struggled in this market, and made a strategic mistake of relying entirely on the Chinese (or any other supplier were they to be available) for their raw materials.  They were then unable to raise prices to cover their escalating raw material costs.  The Chinese are now uniquely positioned to move upstream and market OBAs, more cost-effectively,  to the world.  The move by the Chinese government to abolish the VAT refund on Chemical exports and the squeeze on production from the 'Beijing Olympic Effect' has only hightened the weakness in the strategy - if you do not control your raw materials do not expect to control the market (see earlier blog).

Second, is there really a need to use so much OBA in papermaking?  As the industry strives to find sustainable solutions, is the move by North America (and perhaps Japan) to match the rediculously high whiteness levels found in Europe really necessary?  It is also questionable whether OBAs are, 'The most cost-effective means of raising the whiteness of paper,'  especially when one takes a cradle to cradle assessment.

Furthermore, just how white do we need our paper to be and just how many thousands of tons of OBA do we need to pour into our environment to get a few points more in whiteness?  In time, when 'cradle to cradle' approaches to product development (chemicals and paper) are more widely adopted, the whiteness folly will be exposed for what it is.  In 2006 Clariant boasted in an advert that it had sold over 1 million tonnes of OBA for papermaking - is this a sutainable soultion?

Keywords - OBA, FWA, Clariant, Environment, Sustainability, C2C, whiteness, papermaking, paper, pulp, chemicals.

Struggling Clariant could be broken up

The struggling company continues to be on the receiving end of rumours about its future. Unnamed sources are fueling speculation that the company will be broken up and with additional investigation it appears that the following is planned:

• the pigments and additives division will be sold to a competitor
• textile, leather and paper will be acquired by a private equity company 

This would leave the company as two businesses - masterbatch and functional chemicals (about half the current turnover of Clariant). Speculation was fueled after the departure of CEO Jan Secher and Clariant's inability to find a sustainable strategy.  After the BASF move to acquire Ciba, the needed consolidation in this sector has driven Clariant into a vulnerable position where it has no choice but to make a move to survive.

The article in SontagsZeitung is worth reading.

Ciba to acquire Clariant - further speculation

There is further, increased market speculation (eg Bloomberg) that Ciba will make moves to acquire Clariant, especially since the departure of the CEO, Jan Secher. There has been speculation that both Ciba and Clariant are acquisition targets (see earlier blog), but another option is for for the ailing Swiss companies to get into bed with one another - difficult to see a positive outcome, but perhaps Ciba could make a go of the venture, although their assimilation of past acquisitions has not been exemplary.

In 1988 Ciba and Clariant held unsuccessful merger talks, but as the Bloomberg article points out, Clariant Chairman Juerg Witmer has a reputation as favouring mergers and acquisitions and may have clashed with Jan Secher's wish for Clariant to go it alone. Witmer has since stated that Clariant do not want to sell their Textile, Leather and Paper Division, which would make sense if the two Swiss companies joined forces, allowing them to re-jig the entire, combined portfolio after merging.

Ciba and Clariant will have to do something to survive .............. watch this space for more news.

Back to the future - Clariant appoint Kottmann as new CEO

Following the shock departure of Jan Secher, Clariant has appointed Hariolf Kottmann as the new CEO. In a move that appears to recapture the control of the company by the old Hoechst alliance (Clariant acquired the larger Hoechst organisation in 1997), it will be interesting to see whether Kortmann can bring about the changes required to re-vitalise Clariant. Kottmann is from the old Hoechst Germany school - Is this back to the future or will we see a fresh, modern approach?