By Frank Esposito, Plastics News Staff
Houston, Texas-Peter Huntsman is about to run a two-for-one sale that will affect the future of Huntsman Corp., the plastics and chemicals firm his father started almost four decades ago.
By the end of the year, the Salt Lake City-based company will be split into two separate, publicly traded businesses. One will be a specialty chemicals company with 13 000 employees and sales of $9000 million in polyurethanes, epox-ies, titanium dioxide and textile effects. The other will be a commodity materials business with 3000 employees and sales of $6000 million in polyethylene, polypropylene, expanded polystyrene and ethylene.
The commodity business will produce PP at plants in Odessa and Longview, Texas; PE in Odessa; and EPS in Peru, Illinois. Shareholders in Huntsman will get a share in each of the firms for each share of Huntsman stock they hold.
We're moving full steam ahead with the split," Huntsman said in an interview at the World Petrochemical Conference, hosted 22-23 b March by Chemical Market Associates Inc. in Houston. Peter Huntsman, who has been Huntsman Corp.'s president and chief executive officer since 2000, also gave the keynote address at the event.
Our entire company has been valued [by Wall Street] as if it's a large polyethylene maker, but we're not," he added. We get 75 percent of [pretax] profit from differentiated [speciality chemicals] businesses."
Wall Street has not been kind to the firm since it went public in early 2005. Its per-share stock price opened at $23, and soon rose above $28. But concerns about high raw material costs and commodity demand then sent Huntsman's value down, leaving it at just under $19 in early trading 7 April.
The firm narrowed its 2005 loss to less than $35 million after losing more than $227 million the year before. Sales in 2005 jumped more than 13 percent to almost $13 000 million.
Huntsman's 2005 sales results in polymers and PUs were even rosier, with polymers jumping 17 percent to $1.7 billion and PU up almost 21 percent to $3400 million.
A debt crisis during the chemical industry downturn of 2002 almost bankrupted Huntsman, leading to the sale of a large part of the business to MaitlinPatterson Asset Management LP, a New York-based buyout firm. Today, MaitlinPatterson is Huntsman's largest shareholder with a 35 percent stake. The Huntsman family ranks second with a share of about 24 percent.
The pending split will be another big public transformation for the firm, which Peter Huntsman's father - Jon Huntsman Sr- founded as a plastic packaging company in 1970.
If Huntsman had remained the same company as it was in the late '90s, we'd no longer be in business," 42-year-old Peter Huntsman said. There were some pretty harsh changes taking place inside the market. As a result, we eliminated one-third of our workforce in the US and Europe and closed more than 20 manufacturing sites around world.
It's no longer fashionable to put a lot of dots up on a map," he added. Our 1998 sales were 80 percent into the US and Canada. In 2005 they were 48 percent, which was the first time we had less than half of our sales into those areas.
The worst strategy is to batten down the hatches for the next five to 10 years and ride the cycle out. You have to ask what you can do that's unique."
After the changes and a number of acquisitions, Huntsman is a much larger company. Compared with 1998 figures, the firm's sales have grown almost four times, pretax profit has soared more than five times and research and development spending has more than doubled.
The proposed split could pay off for Huntsman, but timing will be a key factor, according to Jeff Dancer, president of Allan F. Dow Group, a Houston-based private equity firm that works with plastics and chemicals makers.
If Huntsman is going to [split], they should do it now, because it's not going to be easier in the future," said Dancer, who spent 25 years with Phillips Petroleum Co. There's some debate as to whether 2006 is the peak in the current cycle, but Huntsman basically is looking at a lot of options to increase value for their shareholders."
Dancer also agreed with Peter Huntsman's estimates that stock in the commodity company could be valued at five times per-share earnings, while stock in the specialty chemicals company could be valued at seven to eight times per-share earnings.
At the CMAI event, Peter Huntsman joked about his father's sense of timing. Jon Huntsman made a reputation in the plastics and chemicals sector by buying low-priced assets that later became profitable.
In 2000, the year I became CEO, we had our best quarter ever, but soon after that were losing a million dollars a day," he said. I should have known better with my father. He's a master of timing."
Family always has played a big role with the Huntsmans. Peter is one of nine children and the second-oldest son. Older brother Jon Huntsman Jr. was elected governor of Utah in 2004. Jon Jr. and brothers James and Paul also previously worked for the company.
One topic Huntsman takes seriously is the natural gas market. Huntsman and other plastics and chemical makers get hit twice by high natural gas costs, since they use the material both as an energy source and as a feedstock in their material production.
In a Dec. 9 news release, Jon Huntsman said high natural gas prices were a disaster for American industry, the American farmer and for the 55 percent of Americans who heat their homes with natural gas."
This is not an issue of supply and demand," he said in the release. It is an issue of traders and speculators … hurting America on every front while they pocket outlandish profits."
In Houston, Peter Huntsman sounded a similar theme.
After limits on natural gas trading were lifted, the price began moving as much in a week as it did in the entire decade of the 1990s," he said. Now the U.S. is the high-cost market, and the chemical industry is the shock absorber for gas and raw materials so the consumer can see almost no change."
He added that the plastics and chemical sector is missing the boat on advocacy" and is allowing the government to paint an inaccurate portrait of the natural gas market.
The U.S. is sitting today on the highest level of natural gas inventory we've ever had at this time of year," Huntsman said. America consumed more gas in 1995 than in 2005. Newer electrical plants are more efficient and consumption has fallen year on year for the last six years, even though the government has predicted that it would go much higher."
But change in natural gas needs to start at the top.
The first thing we need is proper national leadership," Hunts-man said. Crude oil is above $60 a barrel, but when you factor in shipping and other expenses, its true cost is $100. And there's still no real plan for conservation.
If we would just improve our [automotive] mileage standards a little bit, we could tell Iran to keep its oil instead of kowtowing to these tinhorn dictators around the world," he added. We need to promote a realistic energy policy and look at alternate sources of energy. Punching holes in Alaska [to look for oil] is just idiocy."
Peter Huntsman also defended his firm's decision to build a massive low density PE plant in Wilton, England. Some have questioned the move, which would cost $355 million and add almost 900 million pounds of commodity capacity in a market viewed as mature with low growth.
We had stranded ethylene [in Wilton] and were guaranteed a 25-30 percent return on capital," Huntsman said of the plant, which will open in the second half of 2007. If we had shipped the ethylene to China and got a 10-12 percent return, people would be calling it a good strategic move."
Huntsman said he's optimistic about the years ahead.
There are better opportunities today in the chemical industry than many other industries," he said. There are hundreds of tons of production growing at or above [gross domestic product] rates. We can say things that steel and glass and other industries haven't been able to say for decades.
The US petrochemical market is still the biggest producer and consumer and will be for years to come," he added. It's facing real competitive issues, but it's not dead and gone. In the next 10 years, we'll see some of our most challenging times, but also some of our most profitable times."