PQ Corp. Enters a New Corporate Era

For more than 170 years, PQ Corp. was a low-profile, family-owned firm. It manufactured sodium silicate and other inorganic chemicals, growing slowly but steadily under a cautious management strategy intended mainly to provide regular dividends to its family owners.

But in February, the family sold PQ to JP Morgan Partners, and now the company is being operated the way banks like to operate companies: to maximize their earnings before interest, taxes, depreciation, and amortization--EBITDA--and to increase sales with an eye to a profitable exit transaction sometime down the road.

The person guiding PQ through this strategy shift is Michael R. Boyce, a 35-year veteran of the chemical industry. Boyce, 57, has helped JP Morgan make money in chemicals before, and he thinks he can do it again.

Although he worked for firms like Union Carbide and General Chemical in his early years, Boyce made his mark on the industry as president of Harris Chemical, which got its start in 1988 with the acquisition of a small salt company in Kansas. Working with entrepreneur D. George Harris and JP Morgan predecessor Chase Manhattan, Boyce helped expand Harris Chemical into a billion-dollar company that was sold to IMC Global in 1998 for $1.4 billion in cash and debt.

Boyce believes he can unleash among staffers a creativity that may not have had a chance to flourish in the past.

After the Harris sale, Boyce became chairman of Peak Investments, a private investment vehicle that acquired a series of small inorganic chemical businesses from larger firms. But he kept in contact with JP Morgan--they twice tried to buy chemical businesses together in the late 1990s--and when PQ was put up for sale last September, Morgan banker Timothy J. Walsh gave him a call.

"At Harris, we had approached PQ about a deal in 1995, and the answer was 'no,' " Boyce recalls. "Then last year, JP Morgan and I were made aware that PQ was going on the market. We talked and decided that it would be a nice fit for both of us."

Boyce sees great opportunity at PQ, which today has annual sales of slightly more than $600 million, 1,800-plus employees, and 57 plants in 19 countries. He says the company has a fine reputation with customers and has done a good job of positioning itself in the marketplace.

HIS PLAN is to heighten PQ's emphasis on controlling costs and to explore more rapid growth through internal expansion as well as selective mergers and acquisitions. Boyce oversaw a "substantial" workforce reduction at PQ's headquarters in Valley Forge, Pa., in May, and he says he will look for other ways to operate in a more cost-focused manner than PQ did under family ownership.

"Over the years, some companies have been forced to do it," Boyce says of such cost-cutting efforts. "Fortunately for PQ, the business is good enough that we have an option to be very careful and do it the right way."

At the same time, Boyce believes he can unleash among staffers a creativity that may not have had a chance to flourish in the past. "We recently asked employees to list three things they would do differently if given the opportunity--no holds barred," he says. "They see that we are willing to make changes and take business risks, and that is empowering."

PQ, like Harris Chemical before it, is one of a handful of large U.S. chemical companies focused on the inorganic side of the business. About a third of its sales come from Potters Industries, a subsidiary that makes hollow glass beads used in highway traffic markings and in the production of lightweight plastic composites.

The rest of PQ is built on sodium silicate, a basic chemical produced through the reaction of soda ash and sand. Sodium silicates are sold, typically as a 60% solution, to customers in the paper, water treatment, construction, and beverage industries. PQ also consumes silicates internally to make derivatives such as zeolites used as oil-refining catalysts and silica gels employed in beer clarification.

Boyce will concede to only one weak spot in PQ's portfolio: zeolites sold to the consumer products industry as a detergent builder. This business is on the decline in North America and Western Europe because of the proliferation of liquid laundry detergents, which rely on soluble builders like citric acid.

Otherwise, he sees strong growth prospects for PQ's product line, including detergent zeolites sold in regions where phosphate-based builders are under environmental scrutiny. Indeed, Boyce's rosy outlook for PQ rests in large part on what he calls the environmentally benign nature of silicates and their derivatives. "We believe we have very environmentally friendly products, and in today's world, that will create growth," he says.

In pursuit of growth, Boyce says PQ will also pursue "bolt-on" acquisitions that mesh with its existing portfolio. Although he intends to stick to what PQ knows, he sees enough lack of interest among large chemical companies in silica and other inorganic chemistries to keep PQ and JP Morgan busy on the acquisition front.

Boyce is aware that private investment firms have developed a reputation in the chemical industry as being interested mainly in a quick and sometimes dirty turnaround on their investments. Boyce, however, just joined the board of the American Chemistry Council--not a sign of transience--and he points to JP Morgan's 10-year relationship with Harris Chemical as a sign that the firm is a patient investor.

Boyce says his time horizon is roughly five to eight years--a point when he sees PQ as a $1 billion-a-year firm that is ready to make an initial public offering of stock. Despite PQ's age, he's not concerned about reaching that size. "Even though the products are old," he says, "they are finding new uses every day."