Robert L. Wood

A year ago on July 1, Crompton completed the purchase of Great Lakes Chemical for $2 billion. The transaction made the resulting firm, now known as Chemtura, the fourth largest publicly traded U.S. specialty chemical company.

With sales of $3.9 billion in 2005, Chemtura is still the fourth largest specialty chemical company, after Rohm and Haas, Lubrizol, and Nalco. But the ranks of such firms are thinning. Last month, BASF purchased Engelhard, which until then held the number five spot.

Robert L. Wood, Chemtura's chairman, president, and chief executive officer, didn't set out a year ago to build the biggest U.S. specialty chemical firm, but he did declare his intention to make it the best one. He still has a ways to go. He was on the defensive when he participated in an earnings call with stock analysts on May 5. Analysts wanted to know why the company's first-quarter results, released the day before, were so poor.

Sales for the quarter were $916 million, down 9% from the year-earlier quarter. Operating profits had slipped 15% to $73 million. The firm's stock, which debuted a year ago at $14.45 per share, has lost about one-third of its value and is now trading at about $9.46, although it is up from just above $5.00 per share when Wood joined Crompton in January 2004.

Wood, 52, pinned the poor results on soft demand for ethylene-propylene rubber in the automotive and roofing markets. Demand for rubber additives suffered too, he told the analysts, making it difficult to push through price increases. But demand in other more specialized sectors, such as pool chemicals, was up, and Chemtura succeeded in raising prices in its other businesses, he said.

A hallmark of Wood's tenure has been to promote price increases even if it meant alienating some customers. Wood admits that in some cases the firm has not been as successful in that effort as it would have liked. "We did what we thought was necessary to change the mind-set about the value of our products," he says. "We in the chemical industry have a penchant for giving away value in the price we charge for our products."

But selling commodity products such as rubber and rubber additives in a competitive market is difficult, Wood admits. "We've learned a lot about our value and the marketplace. We will be a much smarter supplier for learning that lesson. It was painful."

All in all, Wood says, Chemtura increased margins last year by raising prices more than the increase in raw material costs. He anticipates the firm's raw material costs will increase by $100 million this year, and he expects to recover those costs in the prices customers pay for Chemtura's products.

"Our underlying business is in very good shape," Wood tells C&EN. Earnings before interest and taxes as a percent of sales were at 8% in the first quarter, but he hopes to achieve a 15% return by the second quarter of 2007. "We will demonstrate as we go quarter to quarter that we are improving the value of our business. And at the end of the day, our stock price will take care of itself."

Operating profits in the first quarter of 2006 were an improvement over fourth-quarter 2005 operating profits of $48 million, Wood points out. And they will continue to improve every quarter, he predicts.

Chemtura has followed through on promises made a year ago, Wood adds. The firm already has reduced costs after the merger and is on track to achieve total cost savings of $150 million by 2007. The company has also succeeded in reducing employment levels by 600, about 8% of its workforce.

The flame-retardants and pool chemicals businesses have improved significantly compared with a year ago, Wood asserts. And the firm has also made progress in selling off noncore businesses. Most recently, Chemtura sold its industrial water additives business for $85 million to Close Brothers Private Equity (C&EN, May 22, page 20).

Still on the block is the former Great Lakes household products business, which sells kitchen and bathroom cleaners such as Greased Lightning and Orange Blast. A year ago, Wood was eager to sell this business. It is still "noncore," but Chemtura won't give it away, he says. "As long as it is delivering value and as long as somebody else values it less than we do, we'll keep it in the mix and keep improving it."

But as the drop in the firm's stock price shows, all the activity at Chemtura hasn't made stockholders happy. "I accept responsibility for setting expectations that in retrospect were not achievable. However, we've now made progress in positioning ourselves to deliver on our commitments," Wood says.

Chemtura is generating cash, and with the price of the stock as low as it is, Wood says he's giving some thought to buying back stock. That decision is ultimately up to the company's board of directors. He emphasizes, however, that the firm will continue to pay down debt, now at about $1.5 billion. Chemtura could also use cash to make add-on acquisitions.

A year ago Wood was willing to say Chemtura could double in size by 2010, but he is now more circumspect. "We have every intention to grow and increase the value of the company and make it a formidable competitor," he declares. And he doesn't expect Chemtura will meet the same fate as Engelhard. "Ultimately," he says, "we expect to create enough value so people can't buy us because we will become too expensive."