June 2004 Initial Public Offering in the Wind for Lanxess If conditions in the financial markets seem favorable, Bayer Ag will most likely launch an initial public offering for its chemicals business Lanxess near the end of 2004. Bayer would retain a minority stake in the new company. As yet no final decision on whether to launch an IPO or spin-off Lanxess has been made.   Famous Quotes of the Month - People who think they're generous to a fault usually think that's their only fault (Sydney J. Harris) - You don't lead people by following them, but by saying what they want to follow. (Enoch Powell) - The trouble with being punctual is that there's nobody there to appreciate it. (Franklin P. Jones) - Enjoy your own life without comparing it with that of another. (Marquis de Condorcet) - Try a thing you haven't done three times. Once, to get over the fear of doing it. Twice, to learn how to do it. And a third time to figure out whether you like it or not. (Virgil Thomson) What does the US Post Office do with mail it can't deliver or return? If a piece of mail is improperly addressed and does not contain a return address, it is sent to a dead letter office. Dead letter offices are located in New York, Philadelphia, Atlanta, San Francisco and St. Paul. There, a US postal employee will open the envelope. If no clues to the address of the sender or receiver are found inside, and the enclosures are deemed to have "no significant value", the letter is destroyed immediately. If the enclosures have some value, the parties involved have 90 days to claim them after which time they will be auctioned off to the public. Cash or items of monetary value that are found in the mail, are placed into a general fund. If not claimed after one year, the postal service can use the funds as it deems necessary. BP to Invest in China BP will invest approximately $1 billion to improve its position in Purified terephthalic acid (PTA) and Acetic acid and expand retail operations in China. The company, with its joint venture partner Sinopec, will expand or build Acetic acid plants at Chongqing and Nanjing. A recently built PTA facility in Zhuhai may also be expanded. Joint ventures with Sinopec, Zhejiang Petroleum Company Ltd. and BP PetroChina Petroleum Company Ltd. will build and operate 500 retail service stations in the Zhejiang and Guangdong provinces. BP will also participate in the Chinese Ministry of Science and Technology's hydrogen vehicle project. Cytec Sets Target Growth Rate at 5-7% In order to achieve its target growth rate in annual sales of 5-7 percent, Cytec hopes to make a specialty chemicals acquisition in China. Over the past six years the company has made 14 acquisitions and expects to continue this trend. Cytec also plans to accelerate new product launches with the goal of attaining more than its current rate of 25% of revenues from new products. The company is targeting the commercial and military aircraft sector. Degussa Invests in China R&D A new R&D center in Shanghai will serve as a platform for growing Degussa's business in China. Degussa currently has 17 companies operating in China and is also planning to open a single multi-user site in the country for several of its business units. Genta Reacts to Genasense Denial In response to the U.S. FDA's rejection of its application for marketing of the cancer drug Genasense (Oblimersen sodium), biopharma firm Genta will cut 85 jobs (45 percent of its workforce). An FDA advisory committee did not approve the marketing of Genasense as a combination treatment with Dacarbazine for patients with advanced melanoma. Genta will also stop supporting its only marketed product Ganite (Gallium nitrate injection). Cash will be reserved so the company can focus on its Genasense injection product. Monsanto, Pharmacia Faced With Lawsuit Over Retiree Benefits Monsanto and Pharmacia, which now owns Monsanto, are faced with a lawsuit by former Solutia and Monsanto employees claiming that the two companies should be liable for $1.3 billion in disability, health care and life insurance benefits. Solutia filed for bankruptcy in 2003 stating that Monsanto gave the company more than $100 million per year in liabilities, including 70% of the retirement benefit obligations of the company even though Solutia made up only 30% of the original company. The lawsuit claims that this arrangement put the retirees at risk for losing their benefits. Potential Loan Default for Yukos A notice of potential default for a $1.6 billion (Euro 1.35 billion) loan was sent to Russian energy and petrochemicals company Yukos. The lender has permitted Yukos to continue its activities, but may exercise its rights to certain bank accounts offered as security. Taxes owed of $3.43 billion (Euro 2.88 billion, Rouble 99.38 billion) and an order from the Moscow Arbitrazh Court preventing Yukos from divesting non-core assets are a major cause of the default, according tot eh company. Yukos also received a similar default notice in April for a $1 billion syndicated pre-export facility secured term loan. Texas Petrochemicals Out of Bankruptcy After closing a $130-million exit financing package, Texas Petrochemicals (TPC) emerged from bankruptcy. The company originally filed for bankruptcy in July 2003. TPC received financial backing from Sandell Asset Management (New York), Ramius Capital Group (New York), LaSalle Business Credit (Chicago), Congress Financial (New York) and unsecured creditors. Challenges to Investing in China Membership in the World Trade Organization is expected to drive the need for organization of China's legal system, and the leadership in the country appears to have made a genuine commitment to reduce corruption. However, a rapidly growing economy has resulted in electricity shortages, much higher raw material costs, and an increased availability of technology. Tightening of the money supply should address many of the financial issues, according to several analysts. Most large petrochemical projects have captive power supply plus guarantees of external supply. However, reduced demand for chemicals may result from the electricity shortage. The crisis is expected to be overcome by 2006. The spread of chemical technology and know how, combined with the R&D efforts of China's many state-owned research institutes means that foreign investors no longer can expect to have advanced capabilities as compared to domestic Chinese producers. Environmental issues also remain a concern. China Places Restrictions on Industries; Petchem Included In order to cool the economy, China's National Development and Reform Commission (NDRC) announced that it will place restrictions on exiting petrochemical plants, reduce lending risks and stop building projects that don't meet capacity minimums are environmental requirements. Other industries affected include textile, steel, aluminum, building materials, machinery, leather and salt, printing and pharmaceuticals. The major focus will be on projects that utilize aged technologies with lower safety precautions and poor environmental performance. Projects already under construction will be halted while being reviewed by the government. Most traders in Asia do not believe the new restrictions on smaller petrochemical projects will have a significant impact on business. Analysts predict that the new rules will benefit China as many of the projects that will be prohibited are inefficient and use large quantities of energy, and as a result are not competitive. Limits on Chinese Lending Impact Chemical Business Loan restrictions implemented by the Chinese government, which are designed to slow down the Chinese economy, will negatively impact chemical operations in Asia. China imports about 60 percent of its petrochemical needs. Small traders and manufacturers will be hardest hit by the control measures. Many predict that smaller traders will be forced out of the market due to the new financial requirements. Korea's petrochemical industry is expected to be impacted very strongly because the country exports about 40 percent of its output to China. Mergers & Acquisitions on the Rise During the first quarter of 2004, $3 billion worth of transactions were completed by the global chemical industry, with 15 deals over $25 million. Although the dollar amount is down from the previous year, much of the new M&A activity this year has yet to be completed. Analysts predict that by year end the dollar volume in transactions will be significantly higher than the $21 billion achieved last year. Recent deals include the Ripplewood Holdings LLC purchase of Akzo Nobel's phosphorus business for Euro 230 million, the Flex-N-Gate Corp. acquisition of Dynamit Nobel's plastics business for Euro 430 million; the Rockwood Specialties Group deal for Dynamit Nobel for Euro 2.25 billion, the Lubrizol acquisition of Noveon for $1.84 billion, and the Albemarle purchase of Akzo Nobel's catalyst business for Euro 625 million. Prices are rising, and analysts believe the M&A market has shifted to a seller's market. U.S. and Europe Looking to Initiate Trade Talks Again Both the U.S. and European Union announced that they are willing to eliminate some export subsidies in order to get global trade talks started again. Disagreements about U.S. subsidies for agriculture products have been a major roadblock to progress on a World Trade Organization (WTO) global agreement on tariffs. The chemical industry would like to see a harmonized approach to global chemicals trade, which could be part of the WTO agreement. Bayer Appoints Lanxess Business Unit Leaders Bayer Chemicals, which will become Lanxess in July, named new leaders for its fine chemicals and paper chemicals businesses. Axel Westerhaus, currently responsible for polyethers in the Material Science group, will become head of the fine chemicals business. Andreas Scheurell, presently responsible for the U.S. paper unit, will become leader of the global paper chemicals business. Scheurell replaces Thomas Eizenhofer, who has been appointed head of the new hardmetals and mill products business unit at Germany's HC Starck. The HC Starck and Wolff Walsrode chemical businesses are not included in the Bayer Chemicals businesses that will become Lanxess. Crompton's Wood Expands Responsibilities Robert Wood, currently president and CEO of Crompton, has taken on the additional position of chairman, replacing Vincent A. Calarco. The appointment is part of the company's management succession plan. PetroChina Replaces Top Management Ma Fucai resigned as PetroChina's company director and chairman of the board of directors for personal reasons after resigning as general manager in April. Various media sources reported that Fucai resigned to take responsibility for a gas well explosion in 2003 at Chongqing that caused 243 deaths in addition to poisoning thousands and requiring evacuation of tens of thousands of people. Current executive director and president, Chen Geng, will take the position of chairman. The former assistant president of China National Petroleum Corp (CNPC), Jiang Jiemin, will become vie chairman and president. SNPE to Get New Head Jacques Zyss has been nominated as chairman and CEO of SNPE, replacing the retiring Jacques Loppion. The nomination is expected to receive approval by the French government, which owns the company. Zyss has held positions with the French information technology group Bull as well as energy and petrochemicals group Total, and has run his own consulting company. Solutia Appoints New CEO Solutia appointed Jeffry Quinn, currently general counsel and chief restructuring officer, as president and CEO. Quinn replaces the retiring John Hunter. The company also named as senior vice president and chief operating officer Luc De Temmerman, who is presently the vice president and general manager of its performance products division. De Temmerman replaces the retiring Robert Clausen. Solutia also appointed James Sullivan as senior vice president and CFO. Sullivan is currently vice president and corporate controller. Ivax Cleared to Acquire Polish Pharma Firm The Polish Securities and Exchange Commission granted Ivax the authority to acquire a majority interest in Polish pharma company Polfa Kutno. Previously the Polish Office for Competition and Consumer Protection granted its approval. Ivax will now move forward with registration of shares in June. The current market value of Polfa Kutno, which focuses on diabetes, urinary tract disorders, cardiac diseases, osteoporosis and pain management, is estimated to be $155 million (Euro 129 million). Novartis and Roche? After losing the battle for Aventis, Novartis may consider making another attempt to takeover Roche. Currently Novartis owns 33.3 percent of Roche, which under Swiss law is just shy of the amount that would trigger a requirement for a takeover offer. Novartis has made no comment on whether it is considering a takeover bid. Roche's CEO Franz Humer says that his company is not concerned about possible moves that Novartis might make. Pfizer Sells European OTC and Personal Care Brands Pfizer agreed to sell 60 European over-the-counter (OTC) and personal care brands to Belgium-based Omega Pharma for $163 million (Euro 135 million). The deal is expected to close by the third quarter of 2004. Skincare, hair care, and women's health are the therapeutic areas addressed. After the sale Pfizer will focus on its core European brands that have the greatest potential for growth. Omega Pharma gains several recognized brands and an expanded market position. U.S. FDA Approves Mylan's Apokyn The U.S. FDA approved Mylan's Apokyn (Apormorphine HCl for injection) for the treatment of Parkinson's disease. The company filed a new drug application for Apokyn in 2003 through its Bertek pharmaceuticals subsidiary. Mylan expects to introduce the product in July of 2004. Apokyn is the first drug in the U.S. that is designed to treat Parkinson's patients during episodes of hypomobility when they are immobile or unable to perform daily activities. Mylan is known as a generic pharmaceutical company but has been increasing its investment in branded drugs. Apokyn will be its third new product on the market. 3M Exits Trifilic Acid Market 3M will no longer manufacture Trifluoromethane sulfonic (Triflic) acid and is closing down its electrochemical fluorination process at the company's Cottage Grove, IL site. A decline in demand and poor returns drove the decision to halt production. U.S. customers of Triflic acid have been forced to look for suppliers elsewhere, including Central Glass of Japan, which recently expanded warehouse capacity in the U.S. and plans to expand production by early 2005. Trifilic acid is used as a reagent and catalyst for production of pharmaceuticals and fine chemicals and also serves as an electrolyte in lithium batteries. Analysts estimate the value of the Triflic acid market to be $7 - $10 million per year. Akzo Moves Forward with Divestment Plans Akzo Nobel has identified buyers for its phosphorous chemicals and mirror coatings businesses. Private equity firm Rockwood Holdings has agreed to purchase the phosphorus chemicals business for $272 million (Euro 230 million), while Group Fenzi will acquire the mirror coating business for an undisclosed amount. The divestments are part of a restructuring program designed to reduce debt, form a more focused coatings group and make cash available for acquisitions. Borden up for IPO An initial public offering will be held by the end of the third quarter for private-equity owned Borden Chemical. Kohlberg Kravis Roberts & Co. (KKR), which owns 99 percent of the company, will receive all proceeds. In 2003 Borden had sales of $1.43 billion and earnings of $23 million. The company is in the midst of a restructuring plan that is expected to net annual savings of $20 million. Ciba Acquisition of Raisio Approved The acquisition of Raisio Chemicals by Ciba Specialty Chemicals has been approved by the European Commission. The deal, valued at $571 million (Euro 475 million) is expected to close by the end of June. The Raisio Group will be debt-free upon completion of the sale. DyStar Bagged by US Platinum Equity BASF, Bayer and Hoechst have agreed to sell their textile dyes joint venture business DyStar to investment firm Platinum Equity for an undisclosed amount. DyStar has annual sales of approximately $961 million (Euro 800 million). Analysts put a price tag of about Euro 400 - 450 million on the DyStar business. The company has experienced decreasing sales and undergone restructuring activities including closure of plants and reduction of its workforce. Goodyear Claims Rubber Chemicals Price Fixing Twelve chemical companies including Bayer, Crompton, Dow, and DuPont are facing a law suit filed by Goodyear Tire & Rubber that seeks compensation for alleged price fixing of Ethylene propylene diene monomer (EPDM), which is used to strengthen rubber-based products and to improve their resistance to environmental conditions. In March of 2004, Crompton agreed to pay $57 million (Euro 48 million) in fines for price fixing of rubber chemicals. Goodyear is looking to recover the overcharges it paid "as a result of the anticompetitive behavior" of the suppliers of EPDM. No amount was specified. The eight other companies named in the suit are Bayer Corp, Bayer Polymers, Uniroyal Chemical, DuPont Dow Elastomers, DSM Elastomers, DSM CoPolymer, Polimeri Europa and Polimeri Europa Americas. Monsanto Files Suit Against Syngenta In a recent U.S. lawsuit, Monsanto requested a permanent injunction to prevent Syngenta from making any commercial sales of corn using Monsanto's patented Ga21(Roundup Ready) technology. Monsanto claims that Syngenta's use of the technology in the U.S. is an infringement of its intellectual property rights. Syngenta acquired the rights to the technology in corn from Bayer CropScience and plans to offer it in a variety of seed brands and through licensees. Celltech Goes to UCB for $2.6 Billion UCB offered to acquire biopharma firm Celltech for $2.6 billion (BSP1.5 billion) and will combine the biotech activities of Celltech with its own chemicals-based pharmaceutical business. Celltech has a leading candidate for arthritis and Chrohn's disease, anti-TNF-alpha pegylated antibody fragment CDP 870, that is in advanced Phase III clinical trials. It also has a pipeline with five other promising compounds in Phase I or early Phase II development. The acquisition will enable UCB to become a player in the biopharma market. Celltech will be able to bring its products to market without relying on partnerships with other drug companies. Analysts have suggested that UCB may sell its surface specialties business following the completion of the acquisition.11` Lyondell and Millennium Receive FTC Approval The Federal Trade Commission (FTC) granted Lyondell and Millennium "early termination" status for their planned $2.4 billion (Euro 1.9 billion) merger, which is expected to be completed in the third quarter. The merged entity will retain the Lyondell name. Millennium's acetyls business will be fully integrated with Lyondell, while its titanium dioxide unit will be run separately. The sale of Millennium's flavors and fragrances business is under consideration. Saudi Aramco and Sumitomo to Form Joint Venture Saudi Aramco and Sumitomo will form a 50:50 join venture company to build a large integrated refining and petrochemical complex in Rabigh near the Red Sea. Early estimates peg the cost of the project at $4.3 billion (Euro 3.6 billion), and the complex, one of the largest ever built, will be designed to produce 2.2 metric tonnes per year of olefins. Saudi Aramco will supply crude oil, Ethane and Butane. Sumitomo brings its chemical technology and marketing expertise to the deal. Omega-3 Fatty Acid Market Strong As consumers have become aware of the health benefits associated with omega-3 fatty acids, demand for these supplements has grown rapidly. Many producers, including Omega Protein, Ocean Nutrition Canada, Pronova Biocare, Croda Health Care, and Martek BioSciences Corp., have expanded their production or are in the process of adding more capacity. In the U.S. the omega-3 market is growing at 20 percent per year. The largest use for omega-3 products currently is in dietary supplements. Their use as additives for foods and beverages, however, is expected to be a very large growth area. Invista Sale Completed DuPont has completed the sale of its Invista textile and fibers business to Koch Industries for $4.2 billion. Koch will combine the Invista operations with is polyester and intermediates subsidiary KoSa and will retain the Invista brand name. Rhodia Unloads Water Treatment Business Rhodia signed an agreement to sell its water treatment business to Feralco of Sweden. Final details of the sale will be determined by the end of June, and financial terms were not disclosed. Feralco, which produces performance chemicals for the water treatment and paper industries, will increase its sales more than two-fold with the acquisition. The company will also expand its product range and gain access to new regional markets within Europe. For Rhodia, the sale is one of many (European phosphates business, food ingredients business, and others) designed to raise money for use in reducing its debt. In This Issue Featured Article Famous Quotes Imponderables Companies Business/Finance Personnel Pharma Fine & Specialty Chemicals Agrochemicals Biotech Commodity Chemicals Fats and Oils Specialty Polymers Water Treatment Corporate HQ:    9101 LBJ Frwy.,    Suite 310 Dallas, TX 75243 USA Tel: (214) 349-6200 Fax: (214) 349-6286

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