When the American colonies won freedom from England, the new nation got the chance to flourish in new markets—but debt payments nearly sunk the enterprise. And so it is with chemical spin-offs. Born with debt, they must follow a path for growth to attract investors.
The new generation of chemical firms was launched by parent firms whose boards—often under pressure from activist investors—decided certain businesses would do better if run independently.
This year’s class included GCP Applied Technologies, which was W.R. Grace’s construction products business; Versum Materials, formerly the electronics chemicals business of Air Products & Chemicals; Ingevity, the specialty chemical arm of the paper company MeadWestvaco (now WestRock); and AdvanSix, Honeywell’s nylon 6 business.
Chemours got off to a rough start. Prior to its official beginning it announced the elimination of more than 5% of its workforce and a $350 million cost-cutting program that will shadow it through 2017. Investors worried about low prices for titanium dioxide and liabilities relating to some 3,500 lawsuits from perfluorooctanoic acid (PFOA) exposure in drinking water.
But just in time for its first anniversary, Chemours booked significant cost savings, bumped up sales of its Opteon refrigerants, and ramped up TiO2 production amid rising prices. Analysts now feel the firm has a good handle on its PFOA liability. In a research note, Jefferies stock analyst Lawrence Alexander said the “transformation is on track and on schedule.”
Covestro, meanwhile, took steps such as closing a high-cost methylene diphenyl diisocyanate plant in Spain. The now-unshackled firm is working on new polyurethanes and polycarbonates including wind turbine materials, specialties for 3-D printing, biobased plastics, and even soccer balls.
Newer spin-offs will likewise have to show their mettle. For example, Versum must grow faster than the industry average, and wisely invest its cash to attract investors, notes Morgan Stanley analyst Neel Kumar.