I/EC
Reports
THE EDITORS ANALYZE A N D INTERPRET THE CHEMICAL WORLD THIS M O N T H
Urge to Diversify Of the mergers and acquisitions in recent years, 2 5 % are for diversification I HE MOVE toward increasing product diversification in the chemical industry is now more marked than ever. This trend is, of course, sweeping across the whole of American industry. As one writer observed not long ago: "At the height of the most prosperous era in U. S. history, when almost any company could be excused for sticking to the things that are working so well, thousands of companies are furiously diversifying into new lines. Companies today are practically queuing up for the services of management consultants specializing in diversification." Diversification is nothing new, of course, to the chemical industry. A well-rounded and varied product line is the very lifeblood of the successful chemical firm. What is impressive, however, is the totally unprecedented rate at which chemical companies are diversifying now. Among the major reasons are the phenomenal strides being made in virtually all phases of chemical technology. Companies are diversifying to take advantage of new discoveries, new processes, and rapid new advances outside the industry. They are also alert to the fact that business loans are far easier to get if the borrower's eggs aren't all in one basket. Besides, more and more family-controlled companies today are becoming publicly owned and, as a result, are being subjected to greater pressure than ever for stability of earnings through product diversification. Manufacturers have many compelling reasons for wanting to diversify. An expanded product line can result in rapid company expansion and rising profits. It can mean
fuller, more effective use of raw materials and by-products. It can help to maintain total profits even though some markets are declining. Diversification can also minimize the effects of seasonal changes in demand and sudden business slumps. As one company explains: "Today, it's vitally important to diversify your risks. After all, there's no sense in being totally dependent on the prosperity of just a few industries." Many companies that traditionally have manufactured just one or two basic products are now widely branching out. Freeport Sulphur, for example, was for years exclusively a producer of sulfur. It has now moved into the oil and gas field, has joined in a cooperative venture to produce potash in New Mexico, and has plans under way for the development of nickel and cobalt in Cuba. Generally, the introduction of new products is the outgrowth of a company's own research and development. A recent survey of some 182 diversifying companies indicated that 7 0 % were doing so as a result of developing new products of their own. In the chemical industry, research is by far the most widely used approach to product diversification. One reason is that laboratory discoveries ordinarily yield the most profitable results. This is especially true where the new product is radically different and outstandingly superior, and can be well protected by patents. As an added benefit, the successful commercialization of research can go a long way toward enhancing company prestige. A notable example was Du Pont's development of nylon, which spearheaded its move into the synthetic fibers field. Another was Olin Mathieson's pioneering work on hydrazine, which touched off its entry into the up-and-coming field of rocket propellents. One major chemical firm, typical of many in the industry, says that 50 to 60%
of its present sales stem from the new products it has introduced during the past 10 years. A leading pharmaceutical firm says that 4 8 % of its current sales are based on products introduced only within the past 5 years. Another way that companies diversify is by licensing the patents and know-how of others. Examples are the entry of Grace Chemical into the plastics field by licensing techniques for the production of
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polyethylene and the entry of England's Albright & Wilson into the silicone field by way of licenses from the U. S. In general, the purchasing of other companies' processes has the advantage of yielding far quicker returns than the slow, laborious procedures of pioneering research. On the other hand, the results may not be quite so profitable. Diversification can also be brought about by the outright purchase of other companies or through mergers. Examples are Olin Mathieson's move into the drug field by the purchase of Squibb, and Monsanto's entrance into the petroleum field through acquisition of Lion Oil. Here again, results are rapid. At the same time, not only does the company gain new products but also much needed, experienced personnel. The Federal Trade Commission estimates that about 2 5 % of the approximately 2000 mergers and acquisitions that took place in the U. S. from 1951 to 1954 were undertaken for the express purpose of diversification. The avalanche of mergers that occurred in the chemical industry during the past few years has clearly been an outgrowth of the urge to diversify. Of course, there are also definite limitations on how far companies can diversify. There are the obvious dangers of diversifying into fields in which a company has little or no experience or no special advantages, such as nearness to markets or readily available supplies of low-cost raw materials. Furthermore, there is the basic problem of getting enough capital to make diversification possible. Many companies deliberately shy away from diversification if it means introducing products manufactured by their customers. They believe their function should be solely to produce raw materials and intermediates—and let their customers turn out the finished products. On this question, opinion in the chemical industry is sharply divided. Many chemical firms are convinced that competition with one's customers is no cause for real concern. Diversification, they say, has progressed to the point today where, in many cases, a purchaser of chemicals would be forced to go to a less desirable source of supply if he insisted on buying raw materials from a noncompeting company—which is 14 A
seldom worth while. Many chemical firms very successfully sell both intermediates and finished products. Examples: Cyanamid's sale of dye intermediates and finished dyes, Rcichhold's sale of resin intermediates and finished resins, Monsanto's sale of detergent alkylates and the household detergent All. Of course, companies can also ovcrdiversify. Product lines may be added that eventually prove insufficiently profitable. Because of this, Ethyl Corp. discontinued producing agricultural chemicals, Heyden sold its plant for the manufacture of antibiotics, USI sold its facilities for the production of insecticides. In the main, however, companies find that product diversification is enormously desirable and certainly one of the surest roads to growth.
I/EC Water Savers Cooling towers save a lot of water, but makers would like them to save more. Standards are a starting point. I o MAKE 150 tons of butadiene in a day, you need roughly 57 million gallons of cooling water. But plant location economics, and water supply and pollution problems, leave few sites where you can use that much water, on a oncethrough basis, to make butadiene or anything else. One result is more and more stringent demands on water re-use devices like cooling towers. And cooling tower makers are moving steadily toward comprehensive design and performance standards for their product. Prime mover is the Cooling Tower Institute, formed in 1950 at Palo Alto, Calif. CTI's job is to close the gap between theory (of which there is plenty) and practice in the cooling tower industry. Members are Fluor Products Co., Foster Wheeler Corp., Hudson Engineering Corp., Lilic-Hoffmann Cooling Towers, Inc., The Marley Co., and J. F. Pritchard & Co. of California. When it started on standards, CTI learned quickly that conventional instruments and methods
INDUSTRIAL AND ENGINEERING CHEMISTRY
did not give consistent answers in measuring cooling tower performance. Instrumentation was thus the first big problem. First step was to buy precision air and water flowmeters. Next, CTI adapted for its purpose two specially designed Air Force instruments for measuring wind velocity and direction. They're electronic, actuated by an interrupted light beam, and hold friction effects to a minimum. For wet-bulb measurement, CTI developed a replacement for the conventional sling psychrometer. It's a mechanically aspirated psychrometer whose self-contained motor blows a steady 1000 c.f.p.m. of air over the wet bulb. The wick has a constant distilled water supply in a reservoir arranged to preclude heating or cooling effects on the bulb; distilled water avoids heat of solution effects in saline conditions and assures uniformity. On performance runs, CTI spaces 12 such psychrometers around the cooling tower. Readings may not be the precise adiabatic saturation temperature, but they're very close and they're consistent. Its instruments assembled, CTI bundled them into a mobile test unit and a field (chemical) engineer set out with it to measure actual performance of cooling towers submitted by cooperating users for study. Field work started on the Gulf Coast in 1951 and covered the country this past summer. CTI analyzes the data and distributes results to its members, cooperating
W a t e r Savers. CTI's field engineer covered the country last summer with this mobile test unit, measuring performance of cooling towers under field o p e r a t i n g conditions. Instruments on tripods a r e mechanically aspirated psychrometers d e v e l o p e d b y CTI
