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Business

Crompton to Buy Great Lakes

Combined firm will be third largest U.S. specialty chemical company

by Marc S. Reisch
March 14, 2005 | A version of this story appeared in Volume 83, Issue 11

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Credit: CROMPTON PHOTO
Credit: CROMPTON PHOTO

Crompton Corp. has signed a definitive agreement to buy its smaller rival, Great Lakes Chemical, in a transaction valued at $1.8 billion including the assumption of $250 million in debt. Pending shareholder and regulatory approvals, the two expect the deal to close by midyear.

The combination will create a company with leading positions in plastics and petroleum additives, castable urethane prepolymers, flame retardants, and pool chemicals just as the earnings prospects for many of these materials are picking up. It will also make Crompton the third largest publicly traded U.S. specialty chemical maker after Rohm and Haas and Engelhard.

NEW CROMPTON AT A GLANCE

Headquarters: Middlebury, Conn.

Sales:$4.1 billion

Operating income: $209 million

Capital spending: $149 million

Employees: 8,500

BUSINESSES (% OF SALES): MAJOR PRODUCTS

Polymer additives (60%): additives for polyvinyl chloride, olefins, styrenics, urethanes, rubber, and petroleum; flame retardants; fluorine products; brominated products

Performance specialties (28%): Petroleum additives, refrigeration and turbine lubricants, castable urethanes, polyurethane dispersions

Consumer products (14%): pool and spa care products

Polymers(8%): ethylene-propylene rubber and urethane polymers

Crop protection (8%): fungicides, miticides, insecticides, herbicides, and growth regulators applied to food and ornamental crops

Refined products (6%): high-purity hydrocarbon white oils, petrolatums, microcrystalline waxes, and refrigerator oils

Polymer processing equipment (4%): plastic processing equipment such as extruders and electronic controls sold through the Davis-Standard subsidiary

Website: http://www.cromptoncorp.com

NOTE: Figures based on 2004 results.

Under terms of the agreement, Crompton shareholders will own 51% of the combined firm, which is to remain headquartered in Middlebury, Conn. Robert L. Wood, Crompton's CEO, will continue to head the company. In addition to Wood, the board will consist of 10 directors, five from Crompton and five from Great Lakes.

Great Lakes shareholders will receive Crompton shares in exchange for their own. The exchange formula puts a value of $29.92 on the smaller firm's shares--a 10% premium above their closing price on March 8, the day before the two announced the deal. Crompton's shares rose 14% on March 9, and Great Lakes shares closed up 24%.

The two firms first began discussing a combination in December, Wood tells C&EN. Talks became serious about three weeks before the merger announcement. Wood says the turning point came when the two agreed on an exchange valuation for Great Lakes shares. Completing "due diligence" investigations and other details took up the last two weeks of discussions.

The past few years have been difficult for both Crompton and Great Lakes. Crompton has had to deal with a number of price-fixing scandals, a major corporate reorganization, and high debt stemming from the acquisition of Witco in 1999. Great Lakes CEO Mark P. Bulriss suddenly resigned last November. The company cited personal reasons, but an analyst at Goldman Sachs attributed his departure to a foray into cleaning products that caused "investor concerns." Until the economy began to pick up last year, both firms had to deal with high raw material prices, deteriorating selling prices, and poor profit margins.

But now, as pricing and profits recover along with the economy, Wood says the time is ripe for the merger. "This combination represents an excellent strategic fit between two companies with complementary business portfolios and will create a company with a strong financial profile," he says. John J. Gallagher III, acting CEO of Great Lakes, adds, "The combination creates options and flexibility that operating as two separate companies would not provide."

Karen R. Osar, Crompton's chief financial officer, says the merger will allow annual cost savings of $90 million to $100 million. About $65 million in savings will come from "organizational redesign." Purchasing synergies will yield another $15 million, while elimination of duplicate corporate functions will result in a further $15 million in savings.

However, Crompton expects to book closing costs of about $40 million and one-time integration costs of $90 million to $100 million. Crompton could not say how many positions will be lost after the two firms consummate the deal. But since Great Lakes Chemical's Indianapolis headquarters will close, at least 45 jobs at that site will be affected.

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