Research Analyst Lim Ji-soo at the LG Economic Research Institute published a report on May 6 titled “New Paradigm of Competition amid Chemical Industry M&A 3.0.” The report calls upon Korean chemical companies to make better use of global M&As in order to accelerate their growth and business advancement in the middle of proactive restructuring by global chemical industry leaders.
“More and more players are trying to reshape themselves to prepare for the future by means of differentiation, with the entire sector in low growth and uncertainties rising due to shale gas and many other factors,” she said, adding, “Under the circumstances, they are increasingly selling their cash cows while acquiring or enhancing new, future-oriented businesses.”
It is in this context that DuPont sold its functional coating business to the Carlyle Group in 2012, despite annual sales of US$4.3 billion. Also, DuPont’s functional materials manufacturing unit, Dow Chemical’s chlorine compound business, and Lockwood’s dye, pigment and water treatment additive production units were announced as restructuring targets last year.
“Assuming that the current M&A 3.0 is in progress as expected, the late starters in the Middle East and China will enjoy a greater presence in the global chemical industry,” she explained, continuing, “This is because they are the ones to take over companies on the M&A market, although the trend is led by those in advanced economies.”
According to a series of recent reports, Middle Eastern and Asian corporations accounted for more than 30 percent, on an amount basis, of the M&A deals made across the world last year. Mrs. Lim is regarding that this could be a potential threat to Korean firms.
“Korean chemical corporations have achieved substantial growth as rookies following their older and more developed counterparts,” she added, “However, they are in stagnation these days, while Chinese and Middle Eastern companies are showing rapid growth and shale gas is making a new risk factor. These are likely to have a serious negative effect on them in terms of raw material supply and market penetration.”
She did not forget to stress the importance of global M&As. “Fortunately though, an increasing number of Korean chemical companies have sufficient financial room for global M&As, and now is the time for them to come up with more specific, fundamental, and highly feasible countermeasures against such emerging risk factors they are already well aware of,” she emphasized.