Thursday, May 16, 2013

Buy & Selling Division in the Polymer Industry

Large chemical companies are constantly buying and selling the various divisions in their collection. Often the rearrangements make sense, and other times they don't. A couple of recent announcements from the business world capture this perfectly.

First, Plastemart is reporting that the BOPP (biaxially oriented polypropylene) film operations of ExxonMobil are being sold to Jindal, an Indian company. This is following the trend of more-and-more BOPP being made by companies not headquartered in North America and Europe. Witness the recent acquisition of AET Films by Taghleef Films of Dubai. This trend has been going on my entire career. My first position out of school way back in 1989 was with the BOPP operations that were then part of Hercules. ExxonMobil was a competitor, but it was clear back then BOPP film was quickly becoming a commodity, so Hercules sold the division off to AET Films. Hercules was clearly ahead of its time since ExxonMobil is only now making the same decision 24 years later. Granted, Hercules had lots of financial problems and no longer exists. I would not expect the same future for ExxonMobil. Regardless, it makes sense that they are exiting a business with very small margins.

On the other hand, the decision of Bayer to exit the carbon nanotube business makes much less sense to me. Sure, sales are not following the hyped hockey-stick trajectory that I'm sure marketing promised, but this is still a relevant and growing technology arena. I can't believe they won't regret the decision in 10 years. (Such decisions are easy to track since the business will still exist. Compare this to when a company deep-sixes a product entirely - it's much more difficult to regret such choices since you can't track how the acquiring firm did with the product.) Bayer certainly has the deep pockets needed to continue the effort, but clearly has chosen not to.

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