Chemical M&A Boom
Local chemical businesses are becoming more actively engaged in mergers and acquisitions (M&As) centered on high value-added special materials. It reflects the market trend that the material business should also focus on specialization rather than scale, with the consumption pattern diversifying.
According to an industry source on May 12, local oil-refining and chemical companies such as LG Chem, Hanwha Chemical, and GS Energy have attempted or are seriously considering M&A deals as part of the efforts to change their businesses into the ones focusing on specializing.
Hanhwa Chemical has reportedly been pondering its participation in the M&A battle targeting the Chlor-Alkali (CA) business unit of Dow Chemical due to the burdensome cost of US$5 billion (5.3 trillion won).
LG Chem also decided last month to acquire a 100 percent stake of Nano H2O, an American manufacturer of reverse osmosis membranes for water treatment. The acquisition money amounts to US$200 million (214.5 billion won). The chemical company is maintaining focus on the high value-added and specialized businesses such as super absorbent polymers (SAP), 3D film-type patterned retarders (FPRs), and medium and large–sized secondary cell batteries, rather than on the existing general resin business.
GS Energy is also aggressively reviewing the acquisition of Cosmo AM&T to strengthen its business portfolio for secondary cell materials. Cosmo AM&T, which was named Saehan Media before its merger with Cosmo Group (an affiliate company of the GS business group), currently produces material to improve both poles of secondary cells belonging to the lithium cobalt Oxide (LCO) family.
Cheil Industries, an affiliate of Samsung Group, is strengthening what they can do best in the related businesses along with the acquisition of Novaled, a German company specialized in the research and development of the core technologies for Organic Light Emitting Diodes (OLED), too.
This trend is in sync with the move of global chemical businesses that pursue the strategy of “choice and concentration.” DuPont has chosen functional chemicals and glass laminating solutions to implement the strategy, while Dow Chemical has restructured the businesses of basic synthetic resins and construction materials. Lanxess has selected rubber additives and nitrile butadiene rubber (NBR) as a target for business reorganization. Such moves are to “prepare some food for the spring” as the nature of the chemical business is that rewards do not come quickly.
With the money secured through the strategy, global chemical players are embarking on the acquisition of futuristic materials businesses. According to Accenture, the number of M&As in the futuristic materials sector for the latest six years from 2007 to 2013 increased to 429, up around three times more than one (187) for the previous six years. In particular, the number of M&As for the last six years in the specialty chemical business increased to 100, up more three times than the 30 reported for the previous same period.
An industry source said, “The fast growth of the Chinese chemical industry and the price cut in general synthetic resins due to the introduction of shale gas are pressuring not only the global chemical players but domestic companies,” and added, “The situation will drive domestic businesses to pay more attention to resource development and specialty promotion.”
Lim Ji-soo, a researcher from LG Economic Research Institute, said, “Korean chemical companies need to actively utilize the global M&A leverage to develop and advance the local chemical industry,” and advised, ”Local businesses should establish a clear strategic direction and take the improvement of rationality and efficiency with growth into consideration.”