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When executives are asked by reporters how well a recently acquired company fits in with its new parent, they typically answer that the cultures of the two organizations are meshing seamlessly. It’s only months or years later that stories leak of epic battles between the two sides.
It was three years ago that Saudi Basic Industries Corp. made a bold statement with its $11.6 billion purchase of GE Plastics. Tales of integration woe might eventually surface. But for now, Charlie Crew, chief executive officer of GE Plastics’ successor, SABIC Innovative Plastics (IP), is giving his bosses high marks.
“You’ll probably think I’m exaggerating, but we could not have been bought by a better company,” says Crew, who has more than 35 years of experience in the chemical and plastics industries, about 30 of them with GE. “It is better going from GE to SABIC than to any private equity company and, quite honestly, than to any other chemical company.”
Crew might be engaging in some hyperbole, but it’s fair to say that GE Plastics provided SABIC with something it had long sought: innovation. Although SABIC grew large and profitable by turning the trapped ethane of Saudi Arabia into exportable chemicals such as ethylene glycol and polyethylene, its leaders had foreseen for years that its raw material advantage was not going to last forever.
SABIC has thus also turned to a strategy of using technology to add as much value to hydrocarbons as possible. With materials such as Lexan polycarbonate, Noryl polyphenylene oxide/polystyrene blend, and Ultem polyether imide, GE Plastics has put a premium on innovation since before Crew joined the company. It generated $6.7 billion from such products in 2006, the last year that sales figures were publicly available.
Crew says that SABIC has been nurturing the GE-born technology. “They have been trusting of our knowledge of the business,” he says. “They want us to be the poster child in-house for innovation.”
Innovation is a big part of SABIC IP’s latest endeavor, which was conceived before the acquisition. Last month, the company opened a 5,000-metric-ton-per-year Ultem plant in Cartagena, Spain, at a cost of about $400 million. The facility increases SABIC’s capacity for Ultem, which it also makes in Mount Vernon, Ind., by 35%. The plant uses a new process technology and can also make polyimide resins.
Ultem is strong and chemically resistant. It can stand up to high temperatures and produces little toxic smoke when it burns. The resin has been a natural fit in applications such as food service tray tables on airplanes.
In recent years, SABIC IP has been pushing Ultem into new applications such as fabric for aircraft interiors and fire-fighter garments. The firm has also been going after new uses for Ultem film, such as capacitors, a market where, Crew says, the resin can improve dielectric performance versus paper.
Another expansion in SABIC IP’s future is a project that was initiated by its Saudi parent. SABIC is the largest shareholder in Saudi Kayan, a company that is on track to open a 260,000-metric-ton polycarbonate plant in Al Jubail, Saudi Arabia, next year.
Given that planning for the plant began long before SABIC purchased GE Plastics, the unit uses technology licensed from Asahi Kasei rather than GE. Nevertheless, Crew says, the technology is similar enough to GE’s own that former GE personnel are helping to get the plant off the ground. “We are certainly involved in taking product out to the market,” he says.
As SABIC gets involved more heavily in the specialty end of the polymers business, more opportunities of that type could emerge, Crew says. For example, SABIC and Celanese signed an agreement to build a 50,000-metric-ton plant to make polyacetal, an engineering polymer used in the moving parts of electronic devices. Crew says that SABIC IP could get involved in the $400 million project.
A successful example of cooperation between the two organizations is the polypropylene compounding, or formulating, business, which SABIC transferred to SABIC IP soon after the acquisition. Mostly geared to the automotive industry, the business includes StaMax long-fiber-reinforced polypropylene. In April, SABIC IP completed a plant in Genk, Belgium, that makes StaMax and other polypropylene compounds.
SABIC IP is planning to expand the StaMax platform globally, Crew says. In the U.S., the company intends to end a toll manufacturing arrangement and bring production in-house. It also plans to expand into China.
Crew has some experience in compounding. In 2002, he took the reins of LNP Engineering Plastics, a polymer compounder that GE had acquired that year. LNP allowed GE to offer customers the properties of resins such as nylon without having to manufacture them itself. “It helped GE Plastics get into some of the performance ranges that we would not have otherwise gotten into,” he recalls. LNP, he notes, compounds everything from basic polyolefins to high-end polyether ether ketone.
SABIC IP’s experience in compounding illustrates the dictum that innovation in the plastics industry often occurs more from tweaking existing polymers than from introducing wholly new ones. “There have been very few truly new polymers that have been invented,” Crew observes. “The industry is looking for material solutions. And many of the material solutions can be achieved without trying to come up with a new polymer. They can be achieved more by copolymerization, additives, and blending polymers together.”
Copolymerization has become an important tool for the polycarbonate business. SABIC IP has been developing copolymers by incorporating new monomers into polycarbonate’s bisphenol A backbone. For example, Crew says, the company has had some success with Lexan EXL, a copolymer of BPA and a phenoxy-terminated siloxane that offers better low-temperature ductility than ordinary polycarbonate for cell-phone housings and other applications. A high-temperature copolymer, Lexan XHT, is penetrating the market for automotive head-lamp components.
The polycarbonate industry needs new applications to keep pace, Adrian Beale pointed out at a conference earlier this year. Beale is the director of engineering resins for the consulting firm Chemical Market Associates. Between 1996 and 2008, the global polycarbonate market grew at an annual rate of 9.2%, mostly because of consumer demand for compact discs and DVDs. “However, this end-use sector is being superseded by other forms of electronic media,” Beale said. He projects growth of 5.5% annually over the next five years.
Another challenge for polycarbonate makers is their reliance on BPA, a suspected endocrine disrupter that has put a damper on certain polycarbonate applications such as baby bottles. This development hasn’t been much of a challenge for SABIC IP, Crew says, because the company focuses on markets such as construction, consumer electronics, and cars. However, SABIC has experienced decline in the media market. “CD audio has dropped off very significantly,” he says.
The decline in two important polycarbonate markets presents a challenge, and surmounting it would certainly bolster Crew’s case that his former company is fitting snugly into SABIC. Perhaps in the case of SABIC’s acquisition of GE Plastics, there will be no merger horror stories to tell.
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