Deal Expands GE’s Chemicals Stake

General Electric Co. may be poised to become a stronger force in the restructuring of the chemicals industry. In a deal that could have multiple repercussions on the chemicals field, GE agreed to ante up $1.8 billion to buy most of the BetzDearborn water treatment business from Hercules Inc. The transaction suggests that GE, which has said that the acquisition would “launch (it) into a new business segment” could be looking for more specialty chemicals operations while it throws Hercules’ future as a stand-alone company into doubt. BetzDearborn, the second-largest player in the water treatment chemicals and services market, with annual sales of $1 billion, will join GE Specialty Materials, a group that also includes silicones, polymer additives, fused quartz, and other products that have technological applications. Analysts who believe that GE may be on the prowl for more chemical properties as they come on the market as the industry restructures were intrigued that the widely diverse company had both the resources and the moxie to swing the BetzDearborn deal at this time. William Woodburn, president and chief executive of GE Specialty Materials, says that the BetzDearborn deal brings in 2,000 sales engineers who also can market for the parent’s medical, power systems, and research operations. “This is sort of a classic GE move,” says Bruce Altman of Andersen, “It’s classic because there is a high level of service in this business. It’s not just a chemicals business. It’s equipment and related services around that. That’s where that value-added is. I think it could lead people to think of GE as a larger player in specialty chemicals than it already is.” Hercules did not sell the entire BetzDearborn business; it retained the portion that sells water treatment chemicals to the pulp and paper industry. The Wilmington, Del.-based company will earmark the proceeds for paying down its huge debt load, much of which it incurred in the original acquisition of BetzDearborn Inc. in 1998. It is trimming down to two core businesses, one of which is the world’s largest supplier of chemicals to the paper and pulp industry. The other, Aqualon, makes products that modify physical properties of water-based systems. Hercules, which has been under pressure from investor Samuel Heyman to sell itself, has been restructuring for the past few years. Altman says Hercules might have some trouble remaining an independent company because its prospects are so tightly tied to the paper industry, which is mature and also in the throes of consolidation. “I’m not sure that the paper industry can sustain them,” he says. “Any time you have a market like paper, where the end users are going through consolidation, there just isn’t much market power for specialty chemicals and other suppliers,” he adds. “That means that there must be some consolidation at the supplier level as well because they are serving a smaller number of larger customers.”