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Eastman Chemical Is Company Of The Year

Strong progress in integrating Solutia makes Tennessee firm this year's choice

by Alexander H. Tullo
January 14, 2013 | A version of this story appeared in Volume 91, Issue 2

Credit: Eastman
Eastman posted strong earnings in 2012 while other chemical companies struggled.
This photo shows Eastman Chemical’s headquarters in Kingsport, Tenn.
Credit: Eastman
Eastman posted strong earnings in 2012 while other chemical companies struggled.

As the name suggests, C&EN’s company of the year feature recognizes exemplary accomplishments made by a chemical company over the past year. What Eastman Chemical, our 2012 selection, has done recently also lays the groundwork for several more prosperous years.

Eastman had a banner year in 2012, which is coincidentally the year its former parent company, Eastman Kodak, declared bankruptcy. Eastman performed strongly in a year rife with economic uncertainty. It strengthened its R&D pipeline. And most dramatically, the firm made its largest-ever acquisition: a $4.8 billion deal for specialty chemical maker Solutia.

In and of itself, a large acquisition isn’t deserving of accolades. Big purchases are often big mistakes, as Eastman should know. A dozen years ago, the company bought McWhorter Technologies and Lawter International in an attempt to create a leading coatings, inks, and adhesive resins enterprise. The effort never gelled, and Eastman soon had to divest most of it.

It was a learning experience. Curt E. Espeland, Eastman’s chief financial officer, admitted to an audience in New York City last spring that the company had a “negative bias against acquisitions because of our experience in the late 1990s.” The company made cautious steps back on the acquisition trail with its purchases of Genovique Specialties in 2010 and Sterling Chemicals in 2011. Together, the deals doubled the size of Eastman’s nonphthalate plasticizer business.

The Solutia purchase, an order of magnitude larger than those acquisitions, is meant to be as transformative a deal as the ill-conceived transactions made a decade ago were intended to be. Chief Executive Officer James P. Rogers recently told analysts that with Solutia, Eastman feels “more like a specialty company.” But the two firms enjoy enough synergies that Eastman shouldn’t have to struggle to make this deal work.

Most of Solutia’s $2.1 billion in sales come from markets that are new to Eastman. Solutia’s largest business is polyvinyl butyral interlayers for automotive safety glass. It also makes specialty films for windows and electronic displays. Additionally, Solutia is the industry leader in insoluble sulfur, used as a vulcanizing agent for tires.

Although the businesses are in new territory, Eastman is putting its own mark on them. For example, Solutia had been planning an insoluble sulfur expansion in Malaysia. After taking over Solutia in July, Eastman delayed the project by 12 months because its engineers saw they could improve the manufacturing process. They came up with yield and operating improvements that they think can reduce fixed costs by 30% and variable costs by 20%. And the technology can be retrofitted onto existing plants.

And Solutia can take advantage of Eastman’s chemistry heft. Eastman makes or purchases eight of Solutia’s 10 most important raw materials. For example, Eastman’s oxo chemicals unit is North America’s largest producer of n-butyraldehyde, the raw material used to make polyvinyl butyral.

Solutia films for touch-screen displays and window tinting are based on polyester, one of Eastman’s core chemistries, noted Gregory W. Nelson, Eastman’s chief technology officer, at the company’s investor day last month. “This ability to put together base polymer characteristics and downstream innovations to create new products is the basis of how we are building the new products for the future,” he said.

Technology is another reason for C&EN’s recognition of Eastman this year. Nelson said the value of the firm’s R&D pipeline hit $850 million in 2012, and it has a goal of reaching $1 billion next year. The company spent $136 million on R&D during the first nine months of the year. Eastman is also looking to build academic partnerships. Last September, the company unveiled a six-year, $10 million program to foster chemistry and materials science research at North Carolina State University.

Eastman’s R&D efforts are bearing some fruit. This quarter, the company will launch a line of microfibers that will be used in nonwoven fabrics for battery separators, filtration systems, and other applications. Leveraging Solutia’s market presence in tires, Eastman is also putting the final touches on cellulosic resin technology that Nelson claimed can reduce rolling resistance in tires without sacrificing traction.

Additionally, Eastman’s Tritan copolyester, which is based in part on 2,2,4,4-tetramethyl-1,3-cyclobutanediol (TMCD), has replaced polycarbonate in applications such as cups and baby bottles. Now the company is investigating the use of a TMCD copolyester as a resin for metal-can coatings. Traditional epoxy can coatings are under scrutiny because they are made with bisphenol A.

Any look at Eastman isn’t complete without considering its financial performance. For the first three quarters of 2012, the firm generated $615 million in earnings on $5.9 billion in sales. Over this period, Eastman’s earnings gained 6.2% while its peer group posted a combined 10.5% earnings decline. The company expects to earn $6.25 per share in 2013 and projects that earnings will hit about $8.00 in 2015.

Over the course of 2012, Eastman’s share price rose 70%, hitting $68.05 at the close of the year. The Standard & Poor’s chemical index, which groups many industry peers, rose 18% by comparison. Not bad for a company whose full transformation may not even be complete yet.

Views expressed on this page are those of the author and not necessarily those of ACS.



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