GE Plastics likely to attract equity buyer

GE Plastics -- the General Electric unit where legendary GE chief Jack Welch and current GE boss Jeff Immelt each learned the ropes -- is for sale.

Officials with Pittsfield-based GE Plastics declined to comment, but a story in the January 8 edition of the Wall Street Journal said the firm is working with Goldman Sachs Group Inc. to find a buyer. The story estimated the unit’s value at $10 billion (78 billion yuan).

GE Plastics ranks as one of the world’s largest makers of polycarbonate, ABS and other engineering resins. The unit posted sales of about $5 billion (39 billion yuan) and profit of $560 million (4.37 billion yuan) in the first nine months of 2006. The sales mark represented a gain of 1 percent over the same period a year ago, but the profit total was 13 percent behind 2005’s pace.

Higher prices for feedstocks such as benzene -- a key precursor used in PC and ABS production -- have hampered GE Plastics’ profitability.

A potential sale has been talked about in the plastics industry for at least a year, but had been denied by company officials. Now the Wall Street Journal story -- including specifics on Goldman Sachs’ role and the bidding process -- leaves no doubt that GE is actively shopping the unit.

A number of market watchers said the estimated $10 billion (78 billion yuan) sticker price makes it more likely that a private equity firm will pick up GE Plastics, instead of a competitor. Private equity firms big enough to swing such a deal include Bain Capital LLC of Boston, and Blackstone Group, Kohlberg Kravis Roberts & Co. and Apollo Management LP, all of New York.

Possible buyers from within the industry -- according to a list compiled by P&M Corporate Finance LLC, a consulting firm in Southfield, Michigan -- are BASF AG, Dow Chemical Co., DuPont Co., Rohm & Haas Co., Saudi Basic Industries Corp. (Sabic) and PetroChina. Other media sources have identified Indian conglomerate Reliance Industries Ltd. as a possible bidder.

PetroChina´s presence on the P&M list is thought-provoking, since that firm is partnering with GE Plastics to build a PC resin plant in northern China. PetroChina is expected to provide feedstocks for the plant. China´s polycarbonate market is growing about 10 percent a year. PetroChina is a state-owned resin maker that -- along with state-owned Sinopec -- dominates Chinese production of polyethylene and polypropylene.

GE Plastics already does more than $1 billion (7.81 billion yuan) a year in sales in China, making it the biggest single GE division operating in that country. In China, GE Plastics operates a compounding plant in Nansha and a similar plant as well as a large technology center in Shanghai. The firm added PC film production in Nansha last year to make film for the liquid-crystal-display television market.

GE Plastics also plans to add compounding capacity next year at a plant in Nantong where GE already produces silicones products. In Shanghai, technology is being added to improve films used in monitors, TVs and global positioning systems in cars. Elsewhere in Asia, GE Plastics operates compounding plants in Moka, Japan; and Rayong, Thailand, as well as a technology center in Moka.

“It’s going to take a private equity firm to raise that kind of cash,” said Michael McCormack, president of Rockwood Group Inc., a mergers and acquisition consulting firm in Avon Lake, Ohio. “Getting big is not strategic anymore for companies already in plastics.”

McCormack added that GE Plastics has been affected by competition from lower-priced materials and by ongoing declines in the U.S. automotive market.

Polycarbonate’s move to commodity status also has hurt GE Plastics, according to Greg Smith, a market analyst with Resin Technologies Inc., a consulting firm in Fort Worth, Texas.

“ABS became a commodity awhile back, and now the same thing’s happening to polycarbonate,” said Smith, who worked at GE Plastics for four years in the late 1990s. “I don’t think that GE Plastics fits GE’s strategy of being differentiated anymore.

“Some of GE’s other units -- like energy and medical -- have been more profitable in recent years,” he added.

Market insiders also said GE Plastics misfired strategically when it chose to build a major PC resin complex in Cartagena, Spain. The project first opened in 2000, but has suffered a number of delays because of lower-than-expected PC demand. The company would have been better off if it had placed the plant in the higher-growth Asian market, sources said.

Still keeping busy

Superstar executive Welch began his GE career in Pittsfield in 1960 and spent 11 years with the plastics business. He took over the top spot at the parent company in 1981. Immelt’s stay in plastics also covered 11 years, spread out over two separate stints of a GE career that began in 1982. He took the helm at General Electric when Welch retired in 2001.

GE Plastics has remained active, even though its future has been unclear. The firm introduced a new product family of Extem-brand polyimides late last year. The high-performance materials are aimed at markets for defense, aerospace, automotive and other products.

The firm also worked with General Motors Corp. on the Chevrolet Volt, a concept car introduced January 7 at the North American International Auto Show in Detroit. Using GE Plastics materials allowed GM to reduce part weight by as much as 50 percent.

In 2007, GE Plastics will continue to work toward launching its iQ-brand line of environmentally friendly resins, as well as investing in application development centers in the U.S., Japan and South Korea, said spokesman Chris Tessier.

Meanwhile, GE Plastics recently trimmed employment at its headquarters in Pittsfield, cutting 20 jobs in December to create “a more efficient and streamlined organization that will increase our global competitiveness,” Tessier said. An unspecified number of jobs are being cut at GE Plastics plants worldwide.

In addition to being a major producer of specialty plastics, GE Plastics operates downstream plants producing plastic sheet and film. The facilities operate as GE Plastics Structured Products, which has estimated annual sales of $300 million (2.34 billion yuan). GE Plastics also includes GE Polymershapes, North America’s largest distributor of plastic shape products such as rod, sheet and tubing.

The unit also is one of the 10 largest compounders in North America, according to industry estimates.

Overall, GE Plastics has production sites in the U.S., Spain, the Netherlands, Brazil, Mexico, Japan, China and Thailand.

In the first nine month of 2006, plastics contributed about 7 percent of the sales total for Fairfield, Connecticut-based GE, but brought in only 4 percent of the firm’s profit. In full-year 2005, GE Plastics had sales of $6.6 billion (54 billion yuan) and profit of $867 million (7.1 billion yuan). GE Plastics employs 11,000.




Sam Xu
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