Is Nothing Sacred?

IN JANUARY, when General Electric's chief executive officer, Jeffrey Immelt, announced that he is considering a sale of the company's plastics business, I winced. I suspect many C&EN readers did the same. "Better off outside the GE umbrella," was Immelt's judgment regarding the plastics unit, adding that it is hard for the company to "put up with volatile businesses."

The volatility comes from record high prices for benzene, the monomer from which the GE polymers polycarbonate and acrylonitrile butadiene styrene (ABS) are derived. At $3.64 per gal, benzene costs 43% more now than it did only a year ago, the company said.

Immelt later implied that Middle Eastern or Russian companies that are back-integrated—which means they can produce their own raw materials—might be better suited to run the business. "Since we didn't want to backward integrate, we think somebody else can forward integrate," he said.

That GE might sell its plastics business wasn't exactly a surprise. The company's recent sale of its silicones business to Apollo Management and Immelt's repeated mentions of GE Plastics in analyst conference calls fueled speculation that it would be next.

Moreover, Immelt had been hinting that there were troubles beyond benzene. "There is no business that's off limits," he said in October. "Clearly, plastics have changed dramatically in the past 10 years." He elaborated in December: "Volume growth has been decent, but pricing hasn't been great."

GE's plastics business earned $674 million on $6.65 billion in sales in 2006. Those are decent-sounding numbers, but the profit margin of 10% ranks near the bottom of GE's businesses.

The numbers and Immelt's statements paint a picture that has become all too familiar in plastics: an escalation of raw material prices that is bearable only if they can be passed along to customers. But many grades of plastic have become "commoditized." Multiple competitors offer similar products that can be used in the same applications, undermining prices. For example, every ABS producer sells resins suited for vacuum cleaner housings.

GE isn't the only company being squeezed between benzene and commoditized products. Nova Chemicals is looking for polystyrene partners, as is Dow Chemical, and Lanxess is restructuring its ABS unit.

It's sad to turn to the last page of GE's history in plastics. Almost as long as there has been a General Electric, there have been GE plastics. Thomas A. Edison's experiments in 1893 related to plastic lightbulb filaments were the seed of the first GE plastics business. GE chemist Daniel W. Fox invented polycarbonate, dubbed Lexan, at the same time that researchers at Bayer did in the early 1950s.

Readers perhaps remember the "bull in the Lexan shop" ad from the 1970s, in which a rampaging bull couldn't break a roomful of Lexan cups, football helmets, and tool housings. I find that ad far more direct and inspiring regarding the benefits of chemistry than anything the American Chemistry Council or Dow have created in recent years.

In 1966, the company introduced Noryl modified polyphenylene oxide, a dimensionally stable polymer used in fluid-handling systems, electrical housings, and many other applications. Fabled GE CEO Jack Welch got his managerial start running the nascent Noryl business.

GE lent prestige to the plastics industry. Here was a company, Wall Street's model of success, that could invest wherever it wanted to, and it continued to back plastics as many oil, pharmaceutical, and diversified companies were turning their backs on them.

The industry has changed from the days when plastics were replacing metal and glass in applications ranging from shampoo bottles to garbage cans. But unlike some of its competitors, GE is still pushing the envelope, still looking to knock metal and glass off of their remaining pedestals.

About five years ago, the company launched Lexan SLX, a film based on polyester carbonate that rearranges when light hits it to create a self-replenishing layer. The firm aims to replace painted metal in cars with this new material. The Chevrolet Volt, an electric concept vehicle, has a roof and windows made of polycarbonate, doors and a hood constructed of thermoplastic composites, and fenders made out of Noryl polyphenylene ether/nylon alloys.

Much of GE Plastics' most important technical work is conducted at GE's corporate global research center in Niskayuna, N.Y. I visited the facility in 2002 and met the team that invented Lexan SLX. The ambiance is as much academic as it is corporate. Of the more than 2,000 scientists working there, a plurality are chemists and chemical engineers.

Wondering if the unit will lose some of its technical luster when it leaves GE, I contacted John Carrington, GE Plastics' chief marketing manager. Carrington brought up other synergies between GE Plastics and the rest of GE. The acquisition of diagnostics company Amersham, for example, has led to new insight about how plastics interact with blood.

Carrington said the extent to which such cooperation continues will depend on the buyer. Reportedly, private equity firms are most interested in the business, although a couple of chemical industry suitors also are sniffing it out. Observers say the price tag should range somewhere between $8 billion and $10 billion.

Carrington maintains that a buyer won't pay such a steep price merely to cut research costs and deprive the famed business of what makes it special. "What everybody is looking for in this business is innovation," he said. "Regardless of what our name is, we will continue to do that because it is ingrained in the culture of everyone here."