CORPORATIONS:
Celanese Quits Oil
Waters' Waters Service of custom separations
C&EN, fractionation can be provided whenever hundreds of grams or pounds of materials are required. This capability, he explains, is due to improved resolutions of GPC techniques which allow for polymer fractions to have polydispersities of 1.009 or less. Further, the large-quantity capability has been achieved by using higher flow rates, more columns, and various other modifications of existing preparative equipment. In addition to his custom separation service, Waters is also offering a series of 10 ultranarrow polystyrene standards with molecular weights from 1000 to 1 million. Sometime next month, according to Jim Waters, "We'll announce the availability of narrow polystyrene standards in the molecular weight range of 4 to 8 million." The New England company is optimistic about the growth potential of its fractionation service. At the top of the list, it cites the use of polymer fractions as calibration standards and as referenced materials for rheological studies. Initial demand for the service is also expected to come from companies engaged in polymer characterization, polymerization, and organic synthesis. Future plans are in the works to ultimately use liquid chromatography for production skill separation, Mr. Waters says. To this end, recent physical expansion of the materials separation division and additional personnel may mark the beginning of a new profit center for Waters.
Celanese Corp., reversing what appeared to be moves to integrate backward, will sell its only two oil subsidiaries—Champlin Petroleum Co. and Pontiac Refining Corp.—to Union Pacific Railroad Co., which is diversifying into natural resources. The sale price is $240 million in cash, the first half payable at the closing in early 1970 and the remainder payable over the following three years. Celanese president John W. Brooks says that the sale will provide capital resources to accelerate substantial longterm growth plans and to take advantage of alternative profit opportunities. Celanese acquired both oil companies to help develop and implement long-term hydrocarbon strategy, Mr. Brooks explains. But now, he says, the company's hydrocarbon needs are covered by a series of longrange contracts with major oil firms. Now having developed intelligence about oil and petrochemical operations, Celanese is choosing not to continue integrating backward. Its move undermines the popular management school theory that integrating backward, or forward, guarantees economies of operation. It suggests that to follow this theory as a corporate policy can entail more costs than the benefits justify. It indicates, too, that changes in technology, marketing, and pricing are continually shifting the incentives to integrate or not to integrate. Celanese had acquired Champlin in 1964 with an exchange of stock with a market value of $204 million. It purchased Pontiac in 1967 for $22 million. Today, both companies have a crude oil production of about 30,000
Celanese's Brooks Lessons of backward integration
barrels a day in nine U.S. states and three Canadian provinces, a refining capacity of 91,000 barrels a day, and 1400 service stations in 12 mid-continent states. From the time of both acquisitions, Celanese has steadily improved sales from its petroleum operations. Sales from Champlin totaled $75 million in 1964, $83 million in 1965, $93 million in 1966, $148 million in 1967 (including Pontiac), and $190 million in 1968. Last year's sales accounted for 13% of the company's total sales of $1.25 billion. Evidently, though, what the petroleum operations were contributing to profits was below the corporate criteria for profit performance. There was little hope, either, that profits would improve in the future when competition with the giant oil companies would intensify. Celanese's spin-off decision comes at a time when the company is under pressure to improve its profits. The company's profit margin has been moving downward and to below par for the basic chemical industry. After-tax earnings were 7.7% in 1964, 7.3% in 1965, 6.5% in 1966, 5.3% in 1967, and 4.6% in 1968 (before write-off of $135 million). Not only will the sale remove an operation with poor potential for profit growth but it will also bring cash into Celanese at a time when it needs it for investment flexibility. The cash will boost working capital which the company has been trying to raise from its current level of 2 1 % of sales toward the basic chemical industry average of 25%. The cash will also delay acquiring further debt and thus will aid in reducing its high debtequity ratio, currently 48%. Strategically, Celanese has little need to maintain petroleum operations including the service stations, just to gain access to hydrocarbon feedstocks for its chemical operations. The economics of such backward integration for most chemical companies aren't there yet in view of the fact that only 3.5% of all liquid hydrocarbon feedstocks go to basic chemicals. Having capability in oil operations and knowing production costs, Celanese has been in a strong bargaining position to negotiate contracts for hydrocarbon feedstocks, particularly ethylene. However, as some ethylene contracts in eastern Texas have changed hands recently, Celanese didn't even need this ace in the hole. Shell will begin to take over some of Phillips' ethylene contract to US I early next year—a move that left Phillips several months ago with a lot of unsold ethylene from its plant in Sweeny, Tex., which it is selling to Celanese for about 2 3 /4 cents a pound. SEPT. 8, 1969 C&EN
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