Chemtura's Comeback

On Nov. 19, Craig A. Rogerson, the chief executive officer of Chemtura, rang the opening bell at the New York Stock Exchange to mark the return of the firm as a publicly traded company. The event marked the symbolic end of 19 months in bankruptcy reorganization for the specialty chemical maker.

Bankruptcy officially ended on Nov. 11. And now that the firm is no longer under court supervision, “we can focus more on the opportunities and the challenges ahead,” Rogerson says. He even envisions the company paying regular dividends to shareholders in the future.

Among Rogerson’s plans are efforts to grow through joint ventures, product-line extensions, and small acquisitions. Furthermore, he expects to expand Chemtura’s presence in Asia by catching up with competitors that have more quickly gained production and raw material footholds in countries such as China and India.

In some ways, Chemtura’s development as a company stalled during bankruptcy, Rogerson tells C&EN. During the reorganization, the firm had to spend its time reducing its debt, improving its cost structure, and resolving environmental and other liabilities. But that interruption set the stage for the growth he expects in the years ahead.

Chemtura filed for bankruptcy reorganization in March 2009, during the depths of the recession. With credit markets frozen and a $374 million bond coming due, the firm had no other option. “We went into bankruptcy reorganization because of a liquidity issue, not because we weren’t profitable,” Rogerson says.

“I wouldn’t recommend bankruptcy,” he continues dryly. Because most decisions needed court approval, “it took longer to get things done,” he says. But the time the firm spent under court supervision allowed it to take care of a number of systemic problems.

For instance, Chemtura was able to wipe legacy environmental liabilities off its balance sheet. A $26 million agreement with the Environmental Protection Agency and the Department of Justice took care of penalties and cleanup costs associated with 17 sites in 15 states (C&EN, Aug. 30, page 18). It also allowed the firm to emerge without any Superfund site obligations.

Chemtura was able to use the bankruptcy process to deal with claims from workers in microwave popcorn factories who asserted that diacetyl, a butter-flavor ingredient supplied by Chemtura, caused them to develop bronchiolitis obliterans, a rare lung disease (C&EN, Nov. 16, 2009, page 24). At the end of August, Chemtura reached a $50 million settlement with a law firm representing 347 diacetyl claimants.

Originally, Rogerson hoped to bring the company out of bankruptcy in March, a year after it entered the process. Working out environmental and diacetyl agreements, as well as haggling with bondholders and stockholders over how much of the postbankruptcy company they would own, were just some of the hindrances to emergence.

Other delays were beyond Chemtura’s control, Rogerson notes. The bankruptcy judge who handled the firm’s reorganization petition, Robert E. Gerber, also had responsibility for two other very complicated bankruptcies: those of General Motors and petrochemical firm LyondellBasell ­Industries.

During the time it spent in reorganization, Chemtura also made a number of internal changes. “We were too slow and bureaucratic,” Rogerson says. The firm had previously operated as a U.S. company with foreign interests. Most of the major decisions were made from headquarters in Middlebury, Conn. During the reorganization, Chemtura moved its home base to Philadelphia and empowered people to make decisions at regional offices.

Freed from court supervision, Chemtura will boost research and development, Rogerson vows. “Innovation is part of our plan to boost growth,” he says. “As revenues rebound, we will spend more on R&D.”

The firm is adding more technical support and R&D jobs and “will behave more like a true specialty chemical company,” he adds. But it has a ways to go. Specialty chemical firms often spend as much as 5% of sales on R&D versus about 2% for commodity-oriented firms. But for the 12 months through Sept. 30, Chemtura’s R&D spending was $40 million, or just 1.5% of sales.

Rogerson is also aware that Chemtura has to have adequate earnings if he is to expand the company in the years ahead. Before interest expenses and bankruptcy costs, the company earned $322 million in the 12 months through Sept. 30. However, after adding back those costs and other corporate expenses, the company had a net loss from continuing operations of $298 million on sales of $2.7 billion.

Moreover, because of higher raw material costs, only $72 million of that $322 million in preexpense earnings came in during the final three months of the period. Rogerson says Chemtura has to get better at passing along increased costs to customers. The firm recently began to charge customers more quickly—within 30 days—to reflect higher market prices for tin, which it uses to make certain organometallic chemicals.

Controlling wild cards such as raw material prices is important to Chemtura’s future success. Indeed, stock analysts have been critical of the company’s cost-control measures in the past.

Dmitry Silversteyn, a chemical stock analyst at Longbow Research, is restarting coverage of the firm now that it has emerged from bankruptcy. He is willing to give Chemtura a pass on raw material price management this time around because higher feedstock costs have held back other chemical firms as well.

Freed of legacy complications, Chemtura has a good chance of being a real achiever, Silversteyn says. In addition to balance sheet and environmental issues, Chemtura fixed other problems during bankruptcy. The firm sold its money-losing polyvinyl chloride additives business and reached a supply agreement with competitor Albemarle that should restore long-term profitability to Chemtura’s bromine business, he points out.

Going forward, Rogerson says that Chemtura plans to produce more of its products and source more raw materials in Asia, particularly in China. Most of what the company makes now is produced and sold in North America and Europe. Asia accounts for only about 15% of sales.

A recent joint venture agreement with UP Chemical, a South Korean maker of high-purity chemicals, will both expand Chemtura’s presence in Asia and help it enter new markets. The joint venture plans to manufacture high-purity metal-organic materials, such as trimethylgallium, in South Korea and sell them to makers of high-brightness light-emitting diodes.

Chemtura is eyeing other joint ventures as well as bolt-on acquisitions, Rogerson says, noting that a new business development team led by Thomas Kelly, vice president of project management, will bring “rigor and discipline” as the firm looks for the best way to deploy cash and grow. “I wouldn’t have thought of trimethylgallium for light-emitting diodes,” Rogerson says. “We need the new business development team.”

Product-line extensions are an additional growth source, he points out. Recent extensions include lubricants for wind turbines and castable urethanes that cure when heated. Plans also call for the introduction of a new food-grade polymer antioxidant, he says.

“We needed a fresh start,” Rogerson says, and bankruptcy reorganization allowed that to happen. “How we execute our plans from now on will be the key to Chemtura’s success.”