Can you trust market data?

It was interesting to read a recent advert for a study by Frost & Sullivan.  The title is, ' European Pulp & Paper Chemicals - is Consolidation the Response to a Mature Market?  What is striking is the market data shown for the European paper chemicals industry - there are only three significant players in a chart that is described as, '..... the market shares of the leading companies in the European pulp and paper manufacturing process chemicals market in 2008.

The segmentation of the pulp and paper chemicals market shows a complete lack of market knowledge and then to suggest that Kemira, Eka Chmeicals and Solvay have 85% of the process chemicals market is claptrap.  Further comments could be made on the report but it it not worth the effort.......... when the data are suspect, how can one trust the conclusions.  

Akzo Nobel acquire chlo-alkali business in Germany

Akzo Nobel announced that it has completed the acquisition of LII Europe, a business based in the old Hoechst Industrial Park near Frankfurt, Germany.  The business and assets are focussed on chlorine and caustic and other related chemicals.

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.

2nd Quarter Results - Eka Chemicals

Buried in the financial results of Akzo Nobel and then again in the Speciality Chemicals Division, it is not possible to glean much about the performance of Eka Chemicals the Pulp & Paper Chemicals Group. The only comment in the press release was:

'Pulp & Paper Chemicals experienced weaker demand and higher energy prices in the second quarter.'

Looking closer at the detail you find:

• Pulp & Paper Chemicals revenue EUR 247 mio (2Q2008)

Not much for the press to get their teeth into - perhaps that is the intention in these hard times.

Antitrust - EU Imposes Heavy Fines on Chlorate Cartel

The European Commission announced that it has imposed fines totalling over EUR 79 mio on four groups of companies for operating a cartel - fixing prices and allocating sales volumes of sodium chlorate. This chemical is mainly used in chemical pulp production where is used to produce the bleaching chemical, chlorine dioxide.

Some of the highlights are:

• The companies involved: EKA Chemicals, Akzo Nobel, Finnish Chemicals (now Kemira), Erikem Luxembourg, Arkema France, Elf Aquitaine, Aragonesas Industrias y Energia and Utralia.
• Period the cartel operated: 1994 - 2000
• Akzo Nobel and EKA Chemicals (subsidiary of Akzo Nobel) received full immunity from the fines as they were first to provide information about the cartel
• Finnish Chemicals (now Kemira) had its fine reduced by 50% for co-operating with the investigation
• The fine imposed on Arkema France was increased by 90% as it was a repeat offender - participated in 'three cartels before this one'

Full details of the fines and the rulings are available from the European Commission web site.

Keywords: Paper Chemicals, bleaching, chlorine dioxide, sodium chlorate, Canda International

Eka Chemicals invest in new R&D centre in Bohus

A new R&D centre was opened following a SEK 40 million investment in Bohus. The new centre will support Eka's pulp and paper business and signals Akzo Nobel's commitment to this segment.

The new R&D center is primarily focused on bleaching and paper chemicals, but a significant part of the operation involves the development of separation products for the chromatographic purification of active substances used for producing pharmaceuticals such as insulin.

The full report is available at Eka's web site.

Eka Chemicals acquire silica sol business

Eka Chemicals, Akzo Nobel's pulp and paper chemicals business, has announced the signing of an agreement to acquire the silica sol business of HC Starck Group (Leverkusen, Germany).

Under the brand name Levasil, HC Starck supplies colloidal silica sols to markets mainly in Europe and South East Asia. The production capacity is around 30,000 tons a year. Silica sols are used in industries which include paper, electronics and construction. Specifically, silica sols are used successfully in Eka's retention aid systems marketed unr the name of Compozil.

Subject to regulatory approvals, the acquisition is expected to be completed no later than the third quarter of 2008.

Akzo Nobel complete sale of National Starch to Henkel

Akzo Nobel has announced the completion of its sale of the acquired Natioanl Starch business to Henkel. This business was acquired recently in the acquisition of ICI by Akzo Nobel and details can be found in earlier blogs on this site. Details of the announcment are given on the Henkel web site.

Let us know if you see any positive or negative effects on the paper chemicals market.

Eka Chemicals success with on-site chlorine dioxide at Stora Enso

Akzo Nobel's, Eka Chemicals, has reached agreement with Stora Enso will to introduce its pioneering chlorine dioxide concept at the Skutskär mill, Sweden. This is part of Eka's global initiative to produce and supply bleaching chemicals inside a customer’s premises while remotely monitoring the whole process from a main operations center at Sundsvall. The chlorine dioxide concept offers cost, efficiency and service/supply-chain benefits.

Eka Chemicals now remotely monitors more than 15 such chlorine dioxide plants around the world at customer sites located in Sweden, Brazil, France, Finland and US. The business is also building a "Chemical Island" for the total chemicals supply to a new pulp mill being built by Votorantim Celulose e Papel in Brazil.

Confirmation - ICI to be acquired by Akzo Nobel

ICI has agreed to be taken over by Akzo Nobel at an agreed price of GBP 8 bn (USD 16.2 bn). The takeover will need to be cleared by regulators and will involve the sale of ICI's adhesives and electronic materials units to Henkel for GBP 2.7 bn.

The impact on the paper chemical suppliers, EKA Chemicals (Akzo) and National Starch (ICI) is yet to be made clear.

ICI was formed in 1926 and in 1984 it became the first British company to report profits before tax of GBP 1 bn.

The trail of earlier weblogs can be followed through the following link.

Update on Akzo's bid for ICI

The date by which Akzo Nobel must make a decision has been extended to 10am GMT on Monday, 13th August, 2007.

Akzo Nobel has confirmed that discussions and the initial due diligence continue. The take-over proposal remains at 670p per share, in cash.

Please see an earlier post for more detail.

ICI will finally be acquired by Akzo Nobel ......... where will this leave National Starch & Eka Chemicals?

Building on an earlier press report today, it looks as though the prolonged process for the acquisition of ICI is coming to a conclusion. The Wall Street Journal has today reported that after ICI had twice rejected bids from Akzo, a tentative agreement has been reached with Akzo and its partner, Henkel, amounting to a transaction worth GBP 8 billion (USD 16.3 billion). Later today (6-Aug-07), the WSJ reported that Akzo had gained limited access to ICI's books over the weekend to undertake a limited 'due diligence' which is expected to be completed ahead of the Takeover Panel’s deadline of August 9th.

Akzo was able to increase its offer after joining forces with Henkel, which in the event of a successful deal will acquire the adhesives and electronic materials business of National Starch, an ICI subsidiary, for £2.7bn. Where this would leave the National Starch paper business is unknown.

The full story will unfold in the coming weeks.

In an earlier report, ICI had rejected Akzo's advances and any deal would have to be approved by Akzo's shareholders - this is by no means certain according to Goldman Sachs. Please click here for the Forbes view.

ICI rejects new offer from Akzo Nobel/Henkel

ICI has rejected a new cash offer bid of 650p a share from Akzo Nobel, saying it did not reflect the full value of the UK chemicals group (see FT article). The revised Akzo offer valued ICI at about £7.77bn. Some analysts are viewing ICI's strategy as risky.

The raised bid was possible through a deal with Henkel (German maker of Persil washing powder and TheraMed toothpaste). If the bid were successful, Akzo would sell on ICI’s adhesives and electronic material businesses to Henkel.

Akzo Nobel own the paper chemicals group, EKA Chemicals and National Starch are part of ICI.

ICI reports interim results on Thursday. Akzo Nobel posted their results last week.

Akzo Nobel (Eka Chemicals) post 2Q07 figures

The figures for the second quarter of 2007 show the chemicals division of Akzo Nobel to have increased EBITDA by 22% (cost improvement) and achieved an organic growth of 4%. The comments specifically related to the pulp and paper chemicals business were:

" ..... the proceeds from higher selling prices were partly off-set by the continued rise of raw material and energy costs." In the presentation of Hans Wijers, the pulp and paper chemicals business is reported to have grown by 6%:

Sales 2Q07: EUR 247 mio (EUR 242mio in 2006)
Sales Jan-Jun 2007: EUR 492 mio (EUR 489 mio in 2006)

Other comments were:

• There was a negative revenue effect from the transfer of the U.S. hydrogen peroxide business to the OCI joint venture.
• In Brazil, an important long-term supply contract for chlorate and chlorine dioxide to VCP (world's largest pulp mill) was secured.
  
• Paper Chemicals continued to achieve good volume growth in Asia. The new plant in Southern China is operating well.

The full report is available from the Akzo Nobel web site.

ICI frustrated with Akzo Nobel ....... request put-up-or-shut-up order

To continue the story from an earlier blog, the FT has reported that, "ICI has asked that the Takeover Panel issue Akzo Nobel with a “put-up-or-shut-up” order. ICI rejected the £7.2bn (€10.7bn) takeover by Akzo but has had no formal contact with the Dutch company since.

The FT report states that, "ICI’s leading shareholders have said that any offer for the company should be above 700p. But some analysts warned that at that price the deal would destroy value for Akzo. The offer of 600p a share is equal to a multiple of about 11.5 times earnings before interest, tax, depreciation and amortisation. At 700p, this multiple rises to 12.5 times. Recent deals in the sector have been at similar, if not higher, levels."

The FT report goes on to state that, "A second approach could trigger competing bids from rivals including BASF, DuPont and Dow Chemical, and possibly from private equity. Akzo has repeatedly said it would not overpay for ICI. The company is sitting on a large cash pile after it sold its pharmaceuticals business to Schering-Plough, the US drugs group, for £11bn in cash in March.

Shares in ICI have risen more than 40 per cent in the past six months on takeover speculation. Some analysts say the antitrust issues, as well as ICI’s large pension, deficit would be a hurdle for any takeover, but not an insurmountable barrier."

The relevance for paper chemicals is that Akzo Nobel own Eka Chemicals and ICI own National Starch.

Akzo Nobel make a strong move to acquire ICI ........ where would this leave Eka Chemicals and National Starch?

In the future, will Eka Chemicals and National Starch both be owned by Akzo Nobel?

Akzo Nobel confirmed this morning that it approached the board of ICI with a view to entering into discussions about a cash offer for ICI. The 600p a share (GBP 7.2 bn bid) offer was rejected by ICI, but the door is left open for a higher offer coming from Akzo Nobel (see articles in the Financial Times and Wall Street Journal). There is also the sensitive issue of the ICI pension fund to resolve and today the trustees made it clear that they have the power to determine the size of the pension deficit which could range from GBP500 mio to GBP 2.2 bn and that the trustees would expect discussions with any serious suitor (see FT article).

Many analysts consider 600p to be an attractive price, and feel this approach could start competing bids from rivals including BASF, DuPont, Dow Chemical, and even possibly from private equity companies.

Regarding the paper chemicals activities of Eka Chemicals and National Starch, there would have to be a question as to whether the business fits with the core activities and future focus of Akzo Nobel.

"In parallel, Akzo Nobel will continue its share buy-back program of €1.6 bn launched on May 3, 2007 and will further evaluate tax efficient options of returning cash to shareholders and optimizing its capital structure consistent with its growth strategy."

For further comments, and a warning to ICI against rejecting Akzo's approach just to protect its old ICI pride when Akzo could be the best option it has see the FT Lex article. Although, Forbes thinks otherwise, and through the day ICI share value has increased.

Eka Chemicals (Akzo Nobel) invest in Brazil

On the 24th May, there was an announcement from Eka Chemicals to continue their investment in Brazil with an injection of EUR 50 million ........ they signed an agreement to supply, store and handle all chemicals for a greenfield pulp mill being built in Três Lagoas, Brazil.

The new mill—known as the Horizonte Project—will have an annual production capacity of 1,250,000 tons of pulp, and was recently transferred to Votorantim Celulose e Papel (VCP) as part of an asset exchange.

Eka Chemicals will establish a chemical island at the new site, mainly for the production of chlorine dioxide. In addition, Akzo Nobel’s pulp and paper chemicals business will also expand its existing site at Jundiaí (São Paulo) where a new production line will produce 30,000 tons of sodium chlorate a year, most of which will be destined for the same Três Lagoas mill. The total investment for Akzo Nobel amounts to around EUR 50 million.

It looks as though the competition for the pulp bleaching business in South America is hotting up between Kemira and Eka.