Solutia Considers Splitting In Half

Solutia has enlisted the investment bank HSBC Securities to help it explore alternatives for its nylon business, including a possible sale. In 2007, the business had revenues of $1.89 billion, or about 51% of Solutia's total sales. An exit would leave the company, which emerged from bankruptcy just four months ago, with what it considers faster growing businesses in specialty chemicals and performance materials.

Solutia has shifted its nylon business away from stagnant fiber markets and toward faster growing engineering resins. "We have transformed our nylon business from a North American-focused fiber business into the world's second-largest producer of nylon 6,6 plastics," CEO Jeffry N. Quinn says. The company claims to be one of only two nylon producers in the world that has a complete range of technology to produce nylon 6,6. The other company with this capability is Invista.

But given the strength of Solutia's other businesses and the challenging dynamics of the nylon industry, Quinn believes it's time to explore other options.

First-quarter nylon sales were up 10% compared with the first quarter of 2007, but higher raw material costs resulted in a $7 million pretax loss for the business. At the same time, combined pretax income for Solutia's Saflex, CPFilms, and technical specialties businesses was up 23% to $108 million in the first quarter.

Solutia wouldn't be the first to exit nylon fibers. In 2004, DuPont sold its nylon and spandex businesses for $4.2 billion to Koch Industries, which combined them with its own polyester operations to form Invista.

During 2007, 28% of Solutia's nylon sales were in Asia, and the company says it can efficiently serve global markets from its North American facilities. But Karen M. Jones, director for fibers and feedstocks in the Americas at Houston-based Chemical Market Associates, suggests market conditions may be challenging.

"We expect additional capacity will come on in Asia and depending on how quickly that happens, Solutia's ability to continue to run its assets is going to be threatened," she says. Private equity firms that believe they can run the business more profitably are potential buyers, Jones says, as are other nylon producers wanting to create a global position.