Chemical & Engineering
NEWS MAY 23, 1966
The Chemical World This Week Growth of credit stirs unease At last week's meeting of the National Association of Credit Managers, in Portland, Ore., many overseers of ballooning accounts receivable in the chemical industry expressed concern over the huge amount of money tied up in these accounts. That, coupled with the generally tight money supply, may harden the industry's attitude toward some buyers· J. Moms Miller of Union Carbide pointed out that U.S. manufacturers as a whole, from 1957 through 1965, increased the dollar volume of accounts receivable 88%, while the chemical and allied industries posted a 125% gain to a total of $5.4 billion. The accounts of basic chemical producers went up 182% to $3.1 billion. Six of the largest chemical companies carried $1.4 billion, up 180% over 1957. Part of the growth in credit comes from increased sales, but the percentage of the growth due to slower collections (longer than 30 days) is considerable—25% for the chemical and allied industries, 43% for 30 selected chemical companies, and 54% for the six large producers. At the end of 1965, these three groups averaged, respectively, 47, 58, and 55 days sales outstanding, Mr. Miller says. A C&EN survey of 18 chemical companies shows similar results—57 days outstanding in 1965 vs. 39 days 10 years earlier. The role of chemical companies as creditors really started to expand in the late 1950's. New producers and expansions boosted capacities for many products beyond demand. High capital cost of plants meant high breakeven points. In the ensuing competition, producers wooed marginal credit risks and won sales. For their part, buyers welcomed the new situation. They were getting capital they might not be able to coax from banks. Some used the new capital to improve their over-all finances. But many are no better off, Mr. Miller says. Declining prices accentuated the trend. A study by Prof. Jules Backman of New York University shows that organic chemical prices went down 11.1% from 1957 through 1964, whereas prices of inorganics went up
3.1%. At the same time, Mr. Miller's data indicate, organic chemicals had a greater growth in receivables and a slower turnover than did the industry as a whole. Although capacity is now below demand for some chemicals, and price increases are appearing, there is bound to be a lag before these are reflected in accounts receivable, if they are at all. Credit experts fear that many customers have become accustomed to credit and have begun to consider it a part of their capital structure. Still, indications are that those who have used it too much and not too wisely will encounter a tougher attitude by chemical companies. Some credit managers expect bankruptcies to increase among this group. With the prime interest rate for loans now at 5.5%, liberal credit costs too much.
Chemical firms generally allow longer credit Company
Days credit* 1955 1965
Air Reduction
49
49
Allied Chemical
33
j 56
American Cyanamid
39
56
Celanese
30
52
Dow Chemical**
49
67
Du Pont
27
42
General Aniline & Film
42
62
W.R.Grace
61
68
Hercules Powder
33
48
Hooker Chemicalf
42
56
Interchemical
36
90
Koppers Co.
60
J 75
Monsanto
39
66
15
33
Olin Mathieson
44
57
Rohm & Haas
36
50
Stauffer
40
52
28
| 62
Nopco Chemical
Union Carbide
!
|
* Days credit is the ratio (multiplied by 365) of accounts receivable on Dec. 31 to total sales for the year ending Dec. 31. ** 1955 fiscal year ends May 31, 1955. t Fiscal year ends Nov. 30, 1955 and 1965.
Texaco not sure to bag DEA Texaco's bid to acquire West Germany's Deutsche Erdoel, A.G. (DEA), has been met by stiff opposition from many quarters in the Federal Republic. The likelihood that the German government will block the acquisition has abated. Indications are, however, that a tussle may yet develop between Texaco and Continental Oil for ownership of DEA, which owns a network of refineries and 5000 filling stations. Texaco's tender is good until June 3. Texaco has offered to swap bearer debentures in its wholly owned subsidiary, Deutsche Texaco, for DEA common stock. Each share of DEA stock could be exchanged for $55 in debentures. The debentures have a 5% coupon, are guaranteed by Texaco, and are payable in Deutsch marks. Effective Nov. 1, 1967, the debentures could be converted into shares of Texaco in the proportion of one share for a nominal $85 in debentures. Closing stock prices in Frankfurt and New York May 12, the day before Texaco revealed its proposal, were $73.50 for Texaco and $43.50 for DEA. Conversion to Texaco stock on that day would have resulted in a 13% gain in value for DEA stockholders. Texaco has had a handful of problems in obtaining German government approval for its offer. At one point, the company broke off negotiations with DEA after it appeared that the government would vigorously oppose a takeover by non-German interests. Now, Federal Minister of Economics Kurt Schmuecker says Bonn will not intervene in any takeover of DEA. He is concerned, however, that DEA, as a purely West German oil company, received public funds for opening up new oil deposits, the results of which a foreign firm could now inherit. Besides obtaining Bonn's agreement not to intervene, Texaco has topped the offers of a number of U.S. and at least one French oil firm for control of DEA. Nevertheless, Texaco is still not certain to obtain the DEA shares it wants without further challenge. Deutsche Erdoel stockholders gave the Texaco tender a cool reception in the first hours after a consortium of West German banks was authorized to make the swap. German stockbrokMAY 23, 1966 C&EN 21
