Ethics of Penn Square Bank and the Dow Corning Bankruptcy

top of the week June 9, 2004

Apollo to Acquire a Chunk of Eastman's CASPI Businesses Pr i v a t e e q u i t y tirm A p u l l oManagement (New York) says it hasagreed to pay $215 million to buy the retnaining assets of Eastman Chemical's coatings, adhesives, specialty polymers, and inks (CASPI) businesses that have heen on t h e hlock since last A u g u s t . T h e deal i n c l u d e s Eastman's acryiate ester momimens, inks and graphics arts raw mate- rials, liquid resins, powder resins, textile chemicals, and unsaturated polyester resins composites, which together employ 2,100. A small colorant product line that was part of the original CASPI assets for sale was sold to Sherwin- Williams (SW) last Decemher.

T h e CASPI businesses being sold by Eastman, including the colorant products husiness, had sales of $600 million last year, but reporred an operating loss of about $70 million, says P.J. Juvekar, analyst at Citigroup (New York). The entire CASPI segment reported an operating profit ot $49 million, on sales of $1.6 billion last year, Eastman says. Apollo will pay $165 mil- lion in cash at closing, plus a $50-million n o t e payable to Eastman. T h e deal is expected to close by the end of July, Apollo says. Apollo will also obtain eight manu- facturing sites in the U.S., and nine overseas.

A p o l l o is bullish on t h e business's prospects. The coatings, comp<isites, inks, and textile businesses "should exhibit attrac- tive growth in the future," says Josh Harris, founding partner at Apollo. The company did not disclose any cost-cutting plans, Apollo says it has not yet decided on a management team or name for the opera- tion. There are no plans to combine the operation with any other chemicals entities Apollo either owns or holds a stake in. Ap(.)lio owns all of epoxies maker Resoluticm Performance Polymers and United Agri. Apollo previously owned Qimpass Minerals and Quality Distribution, which were taken public in August 2003.

The purchase price was well below ana- lysts' expectations, which were hased on sales multiples of other recent specialty

Harris: Attractive growth prospects.

chemical deals. Citigroup says it expected Eastman to receive $300 million-$400 mil- lion for the businesses, although the offer fell

within J.P. Morgan's (New York) e x p e c t a t i o n of $200 million- $ 2 8 0 m i l l i o n , t h e firm says. A p o l l o will fund the purchase via a bank loan and equity, but did not provide specifics.

Eastman announced plans in August 2003 to restructure, divest, or consolidate the money-losing puns ot its CASPI businesses in an effort to improve profitability

(CW, Aug 27ISept. 3, 2003, p . 9). T h e sales to Apollo and SW brings the total pro- ceeds from the divested CASPI businesses to about $260 million, analysts say. J.P, Morgan Securities ( N e w York) advised

Eastman on the Apollo deal. Analysts expect Eastmsun's next divestment

to be its 4 2 % stake in Genencor, which is valued at $ 4 5 0 m i l l i o n - $ 5 0 0 m i l l i o n . Eastman's stake in Genencor was valued at $221 million at the end of 2003, J.P. Morgan says.

The Apollo announcement is the latest in a string of private equity deals in the chem- ical industry'. Platinum Equity (Los Angeles) recently agreed to buy textile dyes pro- ducer DyStar (Frankfurt) from Aventis. Bayer, and B A S F {CW, }une 2, p . 6 ) . Ripplewood Holdings (New York) offered last m o n t h to acquire Akio Nobel's phos- phorus chemicals business for €230 million ($272 m i l l i o n ) . Rockwood Specialties, w h i c h is backed by private equity firm Kohlberg Kravis Roberts &. C o . agreed to acquire four of Dynamit Nobel's six chem- ical businesses from Mg Technologies for €2.25 billion ($2.7 billion). Blackstone Group (New York) recently completed its €1,6 billion ($2 billion) acquisition of Celanese. —KERRI WALSH

Dow Coming Emerges from Bankmptcy Dow Coming officially emerged from bankruptcy on June 1 , and the company says it will begin paying

creditors this month, including silicone breast implant recipients who settled with the company for

$3.2 bitlion in 1998. A group of Nevada plaintiffs dropped their lawsuit against Dow Coming in March,

eliminating the last substantial legal hurdle that had prevented the company

from emerging from bankruptcy (CW. March 31. p. 9). The plaintiffs had

sought to retain the ri^t to sue Dow Coming parent Dow Chemtcai. an option

that is not permitted under the settlement plan.

The emeigence from banknjptcy marks the end of Dow Coming's nineyear

struggle to settle claims with the breast implant recipients. "Although breast

implants have never represented more than 1 % of our business, our company

is often identified with them," says Dow Coming chaimnan Gary Anderson. "We

are confident that the science shows a clear picture today—through more than

30 independent studies, govemment and court-appointed panels, and numer-

ous court decisions—that breast implants are not associated with disease.

Nevertheless, we are pleased to be able to put this issue behind us,"

Dow Corning has established an online system to expedite payments to women v\^o want to set-

tle their legal claims against the company. TTie comparfy s ^ « the first checks to breast implant recipients

will go out June 15. Dow Coming's $3.2 billion settlement plan will pay more than 300.000 breast

implant recipients $2,000-$250,000, depending on their medical condition, TTie settlement trust cov-

ers women who received implants before 1994, because those that had implants after 1994

presumably understood the potential health risks, say representatives ofthe implant recipients,

Dow Coming stopped manufacturing breast implants in 1993, and filed for Chapter 1 1 bankruptcy

protection in 1995. Tbe company past said that the number of lawsuits became unman^eable in part

because of claims that the implants leaked and caused rare autoimmune deficiencies and other dis-

eases.

Meanwhile, Dow Coming has continued to report strong operating results. The company's first-quar-

ter net income jumped 45%, to $52,2 million, on sales up 24%, to $814.3 million (CW. May 5. p. 4).

The company says sales growth was driven by "unusually strong global volume growth and stronger

foreign cun-encies." —KARA SISSELL

Anderson: The issue is behind us.

8 Chemicaf Week, June 9. 2004 www.chemweek.com