July 2004 Lubrizol Closes Noveon Deal Following the completion of its $1.8 billion (Euro 1.5 billion) acquisition of Noveon, Lubrizol reorganized into two operating segments. Lubrizol Additives will be headed by Stephen Kirk, previously vice president for Lubrizol's fluid technologies for transportation (FTT) division. Donald Bogus, recently Lubrizol's fluid technologies for industry (FTI) division, will lead Noveon. "The new structure has been designed to promote accountability, encourage innovation and focus on commercial results," says president and CEO James Hambrick.   Famous Quotes of the Month - Do not let what you cannot do interfere with what you can do. (John Wooden) - Common sense is not so common. (Voltaire) - Don't shake the tree when the pears fall off themselves. (Slovakian proverb) - It is the heart that sees before your eyes can see. Trusting that is an entirely different matter. (Thomas Carlyle) - All doors are hard to unlock until you have the key. (Robert O'Brien) Why Do the Back Wheels of Bicycles Click When You Are Going Backwards? Is there a child in the entire world that has not pondered this question? An executive from a bicycle manufacturing company explains it this way: "The rear sprocket cluster utilizes a ratchet mechanism that engages during forward pedaling, but allows the rear wheel to rotate independently of the sprocket mechanism. When one ceases to pedal, the wheel overrides the ratchet and the clicking noise is the ratchets falling off the engagement ramp of the hub. The ramp is designed to lock engagement if pedaled forward. The ratchet mechanism rides up the reverse slope and falls off the top of the ramp when you are coasting or back pedaling." And let's not forget the kids who used to put baseball cards in wheel spokes to hear the clicking noise when pedaling forward. Bayer Restructuring Took Effect July 1 Bayer MaterialScience LLC and Lanxess began operating on July 1. Bayer MaterialScience includes Bayer's polyurethanes, polycarbonates and coatings raw materials businesses, as well as subsidiaries H.C. Starck and Wolff Walsrode. It will focus on development of new technologies such as luminescent films, weight-saving composites, self-cleaning plastics, nanoscale functional additives, smart polymer surfaces and mass customization. Lanxess is comprised of Bayer's engineering plastics and styrenics, rubber chemicals and polymer additives businesses, which are all mature and offer only modest growth potential. Restructuring, including divestitures and plant closings, are likely, according to Bayer Chemicals AG president Ulrich Koemm. Beginning in 2005, Lanxess will be spun off as a stand-alone company. Huntsman Expected to Launch IPO In the fourth quarter or early 2005, Huntsman is expected to launch an initial public offering of shares on the New York Stock Exchange with the hope of raising $1.5 billion. Global Opportunity Partners, the private equity firm that holds a 48.6 percent stake in the holding company that controls Huntsman's chemical operations will receive half of the proceeds. Huntsman will pay down debt with its share as well as bequeath part of the proceeds to Jon Huntsman's charitable causes, including the Huntsman Cancer Institute. One year following the initial IPO, a secondary offering is expected as well. NewMarket Corp. New Name for Ethyl Ethyl reorganized its businesses under a new holding company named NewMarket Corp., which began trading on the New York Stock Exchange in late June. Shares of Ethyl stock were automatically converted into shares of NewMarket stock. The reorganization includes a separate subsidiary for Ethyl's non-tetraethyl lead business and provides a flexible structure for enabling expansion through both acquisitions and joint ventures, according to the company. Sabic to Expand Petrochemical Operations The board of directors of Saudi Arabia Basic Industries Corp. (Sabic) approved investments totaling approximately $6.4 billion (Euro 5.3 billion) targeted at expanding its petrochemical operations. New plants to produce Ethylene, Ethylene glycol (EG), Polyethylene (PE) and Polypropylene (PP) will be constructed at Yanbu. Addition of Ethylene, PE and EG capacity will also be made at Sharq, its 50:50 joint venture with Japanese consortium SPDC. Sabic will also be adding Methanol capacity at the Saudi Methanol Company, its joint venture with Mitsubishi. The Saudi Iron and Steel Company will increase flat steel product output as well. Schering Restructures In addition to 1110 previously announced job cuts, Schering will reduce its workforce by a further 900 positions. Half of its 24 productions sites will also be closed. The additional job cuts should provide Euro 200 million in production, administration and development cost savings. The company will focus on oncology, gynecology and andrology, diagnostic imaging and specialized therapeutics. These are areas that it considers to have profitable long-term growth prospects. As of October 1, Schering's Euro 200 million dermatology business will be spun off. The company is also dropping its cardiology and central nervous system activities. The goal of the company is to raise margins from 14.5 percent to 18 percent by 2006. Symrise Restructures Flavor and fragrances company Symrise, recently formed via the merger of Haarman & Reimer and Dragoco, will reduce its workforce by approximately 500 jobs and close some plants in order to increase its global competitiveness. The reductions are in addition to 950 job cuts announced in 2003 that were adesigned to eliminate redundancies after the merger. Plant locations were not specified, however Symrise is planning to move some production in North America and Germany to lower wage countries. Despite Challenges, Private Equity Firms Still Pursuing European Chemical Businesses According to a survey conducted by Ernst & Young, private equity firms have invested in 94 European chemical companies and divested 22 businesses. Typically these firms prefer to make a profit within 3 to 4 years. The dearth of divestments underscores the difficulties in making these investments pay over the past decade. The poor economic conditions and the desire of most chemical companies to improve profitability through cost cutting and efficiency improvement rather than via acquisitions have contributed to the difficulties. While flotations to the stock market will remain limited, sales to other chemical companies, particularly those in America, Japan and India will be likely. Most equity firms indicated that they still remain interested in the chemical sector. New Membership in the EU Brings Challenges and Rewards According to PricewaterhouseCoopers, chemical manufacturers in the countries recently joining the EU will face increased competition and consolidation as a result of the expanded marketplace. Domestic producers will likely enjoy increased demand and investment dollars from Western companies as these economies rapidly develop. However, domestic competition is also likely to increase, and Western manufacturers may ultimately be looking for acquisitions. Eastern and Central European companies must eliminate unnecessary costs and find ways to differentiate their products in order to stay competitive in the new economic climate. Significant restructuring within these firms and within the industry as a whole is to be expected. Bayer to Pursue Roche's OTC Business Stock Market Reports have Bayer in a group of second round bidders for Roche's over-the-counter (OTC) drugs business that includes Reckitt-Benkiser, Kohlberg, Kravis, Roberts (KKR), BC Partners, Cinven and Paribas Affaires Industrielles. It is believed that Bayer's supervisory board approved unanimously to pursue its bid for the $1.47 billion (Euro 1.2 billion) OTC business. Analysts peg the sale price of Roche's OTC activities at approximately Euro 2 billion. FDA Gives Early Approval to Vidaza The U.S. FDA awarded early approval to Pharmion Corporation's new bone marrow treatment Vidaza (Azacitidine) injection five weeks earlier than expected. The drug was previously granted fast track status and a priority review, and its orphan status gives Pharmion seven years of market exclusivity for the indication myelodysplastic syndrome (MDS). The company plans to launch Vidaza by early July. The bulk drug substance will be manufactured by Ash Stevens. One Month Delay for Sanofi Takeover of Aventis The closing of Sanofi-Synthelabo's takeover bid for Aventis was delayed one month until the end of July. The postponement was necessary to allow time for Sanofi to receive approval from the U.S. Federal Trade Commission (FTC). Praxair to Purchase Home Care Supply Praxair signed a definitive agreement to acquire Home Care Supply, a supplier of home respiratory and medical equipment, for $245 million. Praxair will combine the new company, which has annual sales of close to $170 million, with its Praxair Healthcare Services subsidiary. The acquisition expands Praxair's presence from the mid-Atlantic to Texas and fits with the company's strategy of growing its home health care business. Ajinomoto Sets up Moscow Subsidiary In order to increase sales of its amino acids in the Russian market, Ajinomoto established a wholly-owned subsidiary in Moscow. The new business hopes to market about 2000 tonne per year of Lysine, an amino acid used in cattle feed. The company is also pushing sales of Lysine in Brazil, India and China. Bain Capital Captures Rhodia's North American Phosphates Business Private equity firm Bain Capital agreed to purchase the North American specialty phosphates business of Rhodia for $550 million (Euro 450 million). The deal is expected to close during the third quarter of 2004. The business produces Phosphoric acid and phosphates for several applications including food, pharmaceuticals, water and metal treatment, horticulture, textiles and detergents. Rhodia is currently in negotiations with Thermphos for the sale of its European phosphates business. CP Kelco Up for Sale Market leading food gums and hydrocolloids producer CP Kelco has been put up for sale by majority owner Lehman Brothers Merchant Banking Partners, which has a 71.4 percent stake. Analysts predict the sale could raise $1 billion for Lehman Brothers. Some likely bidders include J.M. Huber, which owns the remaining 28.6 percent, FMC and the Kerry Group. Formed in 2000 when Hercules's food gums division and Monsanto's biogums business were merged, CP Kelco has leading market positions in Pectin and Xanthan gum. Degussa Moves from E.on to RAG Energy group E.on sold its 50.1 percent majority stake in Degussa to energy and chemicals group RAG for $4.8 billion (Euro 3.9 billion). RAG used proceeds from the sale of Ruhrgas (Euro 1.9 billion) and a Euro 2 billion loan to cover the deal. After the planned sale of its foreign coal mining interests and the plastics processing activities of existing chemicals subsidiary Rutgers, Degussa will account for about 50 percent of RAG's revenue. E.on will retain its remaining 43 percent stake in Degussa until market conditions are appropriate for a sale. Indukern Group Rounds Up Bayer Animal Nutrition Business Spain's Indukern Group acquired Bayer's animal nutrition business for an undisclosed sum. The sale will enable Bayer to focus on its veterinary healthcare business. Indukern gains the brands Baymix and Baykaphos and a new product line for its veterinary distribution business. Supreme Court Rules in Favor of Vitamin Manufacturers Foreign buyers will not be able to automatically sue U.S. companies that engaged in price fixing outside of the country. The Supreme Court overturned an earlier appeals court ruling, but did say that a different legal argument could be used. Vitamin makers previously settled with U.S. customers, but companies based in Australia, Ecuador, Panama, and the Ukraine hoped to recover damages as well. Thermphos to Acquire Rhodia's European Specialty Phosphates Business Thermphos International signed a definitive agreement to purchase Rhodia's European specialty phosphates business for an undisclosed sum. The deal was expected to be finalized by the end of June. Rhodia's business produces and sells phosphates used in food, pharmaceuticals, detergents, water and metal treatment applications. Thermphos will retain all 270 Rhodia employees. TiO2 Market Looks Brighter Rising demand for Titanium dioxide combined with a shortage of capacity has resulted in a price increase of approximately 3 percent during 2004. Producers continue to seek further price hikes as demand is expected to reach record highs. Despite the increasing price, margins remain lower than desired due to high energy and raw material costs. Some producers, such as Millennium, will close operations that are no longer cost effective, further contributing to the capacity shortage. Transfer of Food Ingredients Business from Rhodia to Danisco Finalized Rhodia completed the $391 million (Euro 320 million) sale of its food ingredients business to Danisco. The business includes Rhodia's cultures, hydrocolloids and food safety product activities and had sales of Euro 211 million in 2003. Maxygen Sells Verdia to DuPont Maxygen has agreed to sell its ag-based biotechnology business Verdia to DuPont for $64 million in cash. With the acquisition, DuPont will have access to biotech tools, specifically Maxygen's MolecularBreeding directed evolution "gene-shuffling" technologies. DuPont's Pioneer Hi-Bred business previously developed with Verdia a glyphosate-resistant corn, the first agricultural trait developed through gene shuffling, according to the companies. The corn could be a significant competitor to Monsanto's Roundup Ready seed products. DuPont expects to introduce its new corn within 5-6 years, and is investigating the technology in other crops as well. Verdia will continue its R&D relationships with Delta & Pine Land and Syngenta, two competitors of DuPont. Biotech in the U.S. Experiencing Better Times Ernst & Young predicts that with the current rebound in the U.S. biotech market, the industry could experience profitability by 2008. U.S. biopharma companies together have a robust pipeline of drugs and numerous successful products on the market already. These two factors are contributing to the stability of the industry. As many as 30 initial public offerings may occur in 2004, and the market capitalization of the U.S. biotech industry was up 58 percent over 2002, according to Ernst & Young. U.S. biotech companies raised $5.3 billion in the first quarter of 2004, according to Burrill & Company.