Third Time's the Charm for Celanese

Just nine months after buying Celanese and taking it private, the investment firm Blackstone Capital Partners turned around and sold 40% of the company back to the public in a stock offering earlier this year. It was a good deal for Blackstone, but some observers questioned whether it was good for Celanese shareholders. Celanese President and Chief Executive Officer David N. Weidman maintains that Celanese will prove a good deal for all involved.

The January stock sale marked the third public outing for Celanese, a maker of acetyl chemicals and performance polymers. Celanese had been a longtime public U.S. company when Hoechst bought it in 1987, and it became a public German company when Hoechst spun it off in 1999. It's now again a U.S. public company.

When Blackstone acquired most of Celanese in April 2004, the transaction was valued at $3.8 billion, although Blackstone put up only $641 million of its own funds. The investment firm got back $500 million last September when investors bought Celanese bonds. And Blackstone pocketed another $804 million earlier this year not long after Celanese raised $1.1 billion in the U.S. stock offering.

In a little less than a year, Blackstone more than doubled its original investment in Celanese. What's more, it still owns 60% of the firm, which is now valued at $1.4 billion and could be more valuable if Celanese shares rise above their May 10 close at $15.15 per share.

Some market watchers anticipated Blackstone's quick turnaround. During a December 2003 conference call with analysts following Blackstone's purchase announcement, one investment banker was critical. "I'm going to voice my displeasure about the price. It's ridiculous," he said. "We're in the beginning of an upturn in the business cycle for your type of company, and I'm sure two years from now we'll be asked to buy this back at a much higher price in an initial public offering."

A few investors in the old Celanese incorporated under German law have refused to give up their shares. They are holding out for better terms, and the dispute is wending its way through the German court system.

Some investors were miffed at the January stock offering because most of the cash raised was slated to go to Blackstone. Their dissatisfaction became apparent when the stock market supported an offering price of just $16 per share--well below the expected offering range of $19 to $21.

BY CONTRAST, when commodity chemical maker Huntsman Corp. raised $1.5 billion in an initial public offering in February, most of the money raised went to pay down debt and not to its private equity supporter, MatlinPatterson Global Opportunities Partners. Investors bought Huntsman for $23 a share--at the high end of the expected offering range.

"Huntsman is a stronger company for having gone public, while in the Celanese [initial public offering] only the pre-IPO owners benefited," said John Roberts, a chemical analyst with Buckingham Research Group, back in February.

But to Weidman, Blackstone is one of the best things that could have happened to Celanese. The buyout organization, the CEO says, has done everything Celanese executives hoped it would do when it announced its intention to buy the firm.

Weidman, 49, a chemical engineer with an M.B.A. from the University of Michigan, ticks them off. "We anticipated support in acquisitions; that has occurred. We anticipated support in expansion in Asia; that has occurred. We anticipated support in funding an underfunded pension program; that has occurred. We anticipated support in helping focus our businesses on core areas; that has occurred, too. And what Blackstone has also added is the element of speed. We've been able to move quickly in developing the company. So that has been good for us."

Celanese found itself on a treadmill soon after it was spun off from Hoechst in 1999. It was around that time that the economy and the chemical sector went into a downturn, and Celanese had to cope fast. It sold a number of businesses to concentrate on its acetyl products and high-performance polymer lines, and it bought businesses and formed joint ventures to gain greater traction in those core business areas.

Since 1999, Celanese has sold businesses such as the Targor polypropylene venture with BASF, the Dyneon fluoropolymer venture with 3M, and its U.S. ethylene oxide/glycol business. More recently, it sold its nylon 6,6 engineering polymers business to BASF and its acrylates business to Dow Chemical. In April, it sold its Vectran high-performance polyarylate fibers business to Kuraray of Japan.

Currently on the block are the cyclo-olefin copolymers business and the Permeas fuel-cell joint venture. Though it hasn't said so, word on the street is that Celanese wants to sell its business in the artificial sweetener acesulfame K. Its patents on the product expired at the end of the first quarter of 2005. Another possible candidate for disposal is the polybenzimidazole fire-retardant fiber business. The company has no comment on either of these possibilities.

On the purchase side of the ledger are Air Products & Chemicals' polyvinyl alcohol business and Clariant's emulsions business. In October 2004, the firm reached an agreement to buy acetyl chemicals firm Acetex for $492 million in a transaction that is still awaiting European regulatory approval. In February, it completed the purchase of the ICI Vinamul emulsion polymers business for $208 million.

Recent joint ventures include the Estec neopolyol esters pact with Hatco and the European oxo chemicals venture with Degussa. The company has also made large investments in acetic acid plants in Singapore and China, in acetate filter tow capacity in China, and in a polyacetal plant also in China. Capital spending to support such expansions has been running in the range of 4 to 5% of sales and will continue in that range for the foreseeable future, Weidman says.

The run over the past few years has left Celanese a trimmer firm than it was in 1998, when it had a workforce of 17,500 and sales of $5.3 billion. At the end of 2004, Celanese had just 9,100 employees and sales of $5.1 billion. Celanese has exited from unprofitable plant sites and businesses. For instance, in 2002 it shuttered acetic acid and vinyl acetate plants in Canada. In October 2004, Celanese said it would exit the acetate filament fiber business and consolidate production of acetate flake and filter tow at other locations, with a loss of about 1,000 jobs.

The question now is whether Celanese can do right by both its public and private equity investors. Weidman tells C&EN that Blackstone's involvement with Celanese has helped accelerate the firm's efforts to simplify a complex entity. "We were listed, as an example, both in Germany and New York. Now we are listed on one stock exchange in New York."

As the economy has improved, Celanese has raised prices for many of its products. Many major reorganization efforts are completed or under way, and the firm is generating cash. Operating income in 2004 more than doubled compared with the year before to $250 million.

Paying down long-term debt, which stood at $3.2 billion at the end of 2004 versus $489 million in 2003, will be "a key use of the cash that we are generating," Weidman says. But Celanese has other plans for the cash it will generate too--such as paying for Acetex, if and when the deal is approved, and making other bolt-on acquisitions "that help strengthen our businesses."

The firm has also committed itself to pay a quarterly dividend to shareholders of 12 cents per share beginning in the second quarter of this year. The annualized payout would be about $19 million. Weidman adds, "We certainly want to use the shareholders' cash in a way that creates value."

It's not only expansion in Asia, and particularly China, that Celanese is counting on to drive growth, Weidman says. Celanese is also looking to the executive talent that recently joined the firm and its board of directors.

The firm has a new chief financial officer, a new chief counsel, a new human resources head, and a new president of China operations. Recent additions to the board include Daniel S. Sanders, former president of ExxonMobil Chemical; William H. Joyce, who left Hercules in 2003 to become CEO of Nalco, another Blackstone investment; Paul H. O'Neill, former U.S. Treasury secretary; and John M. Ballbach, former CEO of coatings manufacturer Valspar.

Also on the board, Weidman says, are several Blackstone representatives who "bring a lot of credible expertise in finance," including Chinh E. Chu, who oversaw Blackstone's deal to acquire Celanese and serves as Celanese chairman.

R&D is also important to the firm's future, Weidman says. It was R&D that gave Celanese its low-cost positions in acetic acid with its AO Plus acid optimization technology and in vinyl acetate with its Vantage technology. Celanese now spends about 2% of sales on R&D. That may not sound like a lot, he says, but it's not evenly spread across all product lines. R&D spending for some businesses ranges as high as 7% of revenues.

"Our company's development of innovation goes far beyond the research dollars we spend," Weidman contends. "We've had a significant amount of innovation by deploying Six Sigma through the organization." Weidman says he has championed the data-driven quality assurance program since he joined Celanese in 2000. The technique, he says, is helping Celanese save money by doing things smarter. For instance, a project to examine shipping methods for one product led to annual savings of $454,000, Weidman says.

Weidman is counting on Six Sigma to help improve productivity and get the most out of growth opportunities that come the company's way. "We operate someplace between OPEC and WalMart. To prosper as an enterprise, we need to drive growth and productivity. Our belief is that you have to do both to do well."

Keeping costs in line means more than just having good technology. An agreement with Southern Chemical Corp. gives the firm access in North America to low-cost methanol produced in Trinidad from plentiful natural gas. A joint venture with Saudi Basic Industries Corp. in Saudi Arabia gives Celanese additional access to low-cost methanol for use in European and Asian facilities.

When C&EN spoke to Weidman in 2003, he said the firm hoped to expand a $4.5 billion-a-year enterprise into a $10 billion business by 2008. Given the difficult operating environment Celanese has encountered for the past few years, Weidman is unwilling to make any similar predictions today.

"We've been reluctant to go public with our targets," he says. "We'd love to be able to share that. But what I can tell you is that we want to be recognized as a premier chemical company--one of the best in the industry. We believe that we've made substantial progress. We know that we can go further and do more."