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A SECOND ACT Private investors hope to BRING BACK ON-LINE a shuttered petrochemical complex WHEN AN OLD chemical plant is closed,
that’s usually the end of it. The best equipment is auctioned and the rest is scrapped. But that’s not necessarily the fate of a petrochemical complex in the West Texas town of Odessa that was shuttered earlier this year. A private group, which includes a former chief executive officer of the complex, wants to buy the plant and start it up. The Odessa complex had been running since John F. Kennedy was president, changing owners several times in its convoluted history. It started as a joint venture between the pipeline firm El Paso and packaging maker Dart Industries. They completed the olefins cracker in 1961. At its peak, the complex made ethylene, propylene, polyethylene, polypropylene, styrene, and specialty polymers. By 1983, the plant was in the hands of former managers. It went public as Rexene in 1988. Huntsman Corp. bought Rexene in 1997 for $600 million in a hostile takeover that Huntsman CEO Peter R. Huntsman has ranked as his company’s biggest mistake. Flint Hills acquired the complex in 2007 as part of its $770 million purchase of Huntsman’s North American petrochemical business. Earlier this year, Flint Hills shut it down, a victim of the bad economy. Now, Constellation Capital Management, a merchant banking firm based in Novato, Calif., has linked with former Odessa complex employees to try to buy it from Flint Hills. William J. Gilliam, once the CEO of Rexene, is leading the effort for Constellation. Gilliam has big plans. Constellation’s idea is to get a publicly traded holding company with cash on its balance sheet to spearhead an all-cash purchase. “It will be a public entity with more than adequate cash to do what needs to be done,” Gilliam says. The
facility probably needs $50 SIGN OF THE TIMES million to $100 million in Hills’s improvements to get back Flint Odessa, Texas, up to par, he notes. petrochemical Gilliam was the domicomplex was closed earlier nant figure in the middle this year. part of the Odessa complex’s long history. In the 1980s, he had been involved with the initial public offerings of the fine chemicals firm ChemDesign and the activated-carbon maker Calgon Carbon, where he remained a director for a decade. In 1987, Gilliam says, he was approached to do more chemical deals by the high-yield department of the Wall Street firm Drexel Burnham Lambert, which was led by Michael Milken, the financier who later went to prison for fraud. By then Rexene was languishing under private management and caught Gilliam’s attention. In 1988, Rexene went public with Drexel affiliates holding a majority interest and Gilliam becoming CEO. GILLIAM’S TENURE at Rexene ended
badly. In 1990, the board, which Gilliam chaired, decided to pay a $6.00-per-share special dividend. Gilliam estimates he had about several million shares at the time. The company financed the dividend with $500 million in short-term notes at high interest rates that increased quarterly. Drexel underwrote the notes and earned fees in addition to the special dividend on its own shares. The payments overwhelmed Rexene, and it declared bankruptcy in 1991. By then, Drexel was also bankrupt. “There was a tremendous amount of resentment for Drexel, and I was the focal point for that,” Gilliam recalls. Rexene’s sponsorship of the 1991 Ryder Cup golf tournament in
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Kiawah Island, S.C., further inflamed Rexene’s creditors. The bankruptcy wiped out shareholders, including Gilliam. Gilliam’s new company, Constellation, also has a checkered record. It runs two joint ventures with Axial Vector Energy Corp., which purports to be developing a breakthrough engine that can run on palm oil. AVEC’s shares are traded on the thinly regulated over-the-counter market known as the “pink sheets.” It constantly puts out press releases touting its technology. The Securities & Exchange Commission launched an investigation of AVEC in 2007. The company announced a year later that it had been exonerated. AVEC’s last official financial disclosure was in May 2007. The unaudited numbers showed no sales, $436,000 in assets, and $14.5 million in liabilities, mostly in share-based compensation and fees to executives. “They are well aware that they have sooner rather than later to clean that act up,” Gilliam says of AVEC. But he claims that he has seen AVEC’s engine running. Although his record is far from pristine, Odessa locals seem to be rooting for Gilliam. One is Nick Fowler, president of Orion Pacific, which purchased Flint Hills’s shuttered atactic poly α-olefins (APAO) plant. Also known as atactic polypropylene, APAOs are copolymers of propylene and butene that are used in hot-melt adhesives. Orion had been making compounds of the polymers at an adjacent plant and was left without a feedstock when the petrochemical complex closed. The purchase was meant to secure its feedstock. Fowler named the APAO operation Rextac, after the tradename of the APAO products, and plans to reopen it later this month. The company may also convert an idled polypropylene line at the site into a second APAO plant. But with the closure of the ethylene cracker, the company now must get its feedstock propylene by railcar. Fowler is excited that Constellation might reopen the ethylene cracker. “It would be wonderful for us if they started the cracker and propylene splitter,” he says. He also offers high praise for Gilliam. “He knows the business and knows finances. If anybody could do it, Bill could.” Others hold Gilliam in high regard as well. Gary Vest, a director at the local business advocacy group Odessa Development Corp., is upbeat about Constellation’s plans for the Odessa facility. “The only time the plant made any money was when Bill was running it,” he says.—ALEX TULLO
