M & A Roundup – Washington Update: Resin Makers Blend Their Product Lines

Geon Co. and M.A. Hanna Co.’s plan to merge, announced in early May, will create a $1 billion market-cap plastics firm with complementary products in commodity resins like polyvinyl chloride (PVC) and rubber compounds. The deal, structured as a stock swap, will create the world’s largest polymer services company with expected yearly sales of $3.5 billion. The transaction is expected to close in August. Both companies are in northeast Ohio. “The deal will save our companies a combined $50 million annually by 2002, mostly from cross-selling of products and volume deals from raw material suppliers,” said Geon chairman and CEO Thomas Waltermire. A heady blend of plastics materials Geon specializes in PVC and plastics compounds and while it has been hurt in recent years by weak PVC prices, the PVC market has been improving, said one industry source. He pointed to a recent successful price increase of 2 cents per pound in January as evidence that PVC has become more profitable. Hanna’s primary businesses are plastics compounding, additive systems, and rubber compounding. Hanna is expected to contribute its international marketing clout while Geon will bring its e-commerce expertise to the newly formed company. The companies said that they will profit from broadening their product range, which will enable the new entity to become a one-stop shop for customers. “We were attracted to Geon’s strengths in vinyl materials, operations, information technology, and e-commerce. Together we can go to market with a breadth of technologies and services that is second to none,” said Phillip Ashkettle, M.A. Hanna’s CEO, who will become chairman and CEO of the combined company. Waltermire will become COO and president. The pact marks the combination of two companies that have been acquisitive during the last few years. Geon has bought eight companies in the last two years. It also formed a joint venture with the OxyChem subsidiary of Occidental Petroleum Co. to market PVC. Hanna has bought 23 companies in the last decade in an effort to diversify its product offerings. “The knock on Hanna has been that it has had trouble integrating these purchases,” said Mike Sison, a chemical industry analyst at McDonald Investments, Cleveland. However, Alex Markin, of the consulting firm of First Analysis in Chicago, said that under Ashkettle’s management, Hanna has been able to reduce the turf wars and integration problems that had marred past acquisitions. He added that companies like A. Schulman, Clariant Ltd., and Amphacet Inc. might feel increased pressure to make acquisitions in response to the Geon-Hanna combination. The plastics industry is highly fragmented, he says, and there is still a lot of room for further consolidations. Companies that might be especially appealing to acquirers, Sison said, are plastics companies with $25 to $50 million in sales. The newly formed company may still be in the chase for assets after the integration of Geon and Hanna. At the time of the deal’s announcement, Ashkettle said that one reason for structuring the transaction as a stock swap was to ensure that the company will have a sizeable war chest for further acquisitions. “We will be in a much stronger position as the consolidator of choice to expand our business portfolio and strengthen our global presence.”