BUSINESS EUROPE
RHODIA STANDS FAST Despite loss for 2001, company is not looking for merger partners, remains confident
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MERGING FROM AN EXTREMELY
depressed" year and an aborted merger bid, the top managers at French specialty chemicals producer Rhodia were remarkably sanguine in presenting their 2001 results at the end ofjanuary The company posted a net loss of $ 183 million, compared with a profit of $186 million in 2000. The loss, though, reflected heavy restructuring charges; excluding nonrecurring charges, the firm had a net profit of $59 million. Sales were down by 2% from the precedingyear to $6.3 billion. And the company knocked $425 million off its corporate debt of roughly $2.6 billion at the end of 2000, in large part with the proceeds from asset Tirouflet sales. The strategic sale of as- ~ sets is expected to continue this year: In abid to reduce debt by at least $430 million, the company has hired consultants to advise it on the sale of noncore businesses. According to Pierre Prot, chief financial officer, Rhodia expects to be back in profit this year. For one thing, the company anticipates the year's restructuring costs to return to "normal"
levels of $25 million to $35 million. Still, at least one securities firm has downgraded its rating on Rhodia, from "neutral" to "underperform." Schroder Salomon Smith Barney says the company is overvalued relative to its fundamentals. At the same time, analysts there noted that speculative interest continues over
ty. However, DSM insisted upon confidentiality, Tirouflet says, so "in this context, I had no legal means to consult the shareholders." According to Tirouflet, "We studied the figures, and we decided unanimously we did not wish to go ahead for three main reasons. First, the amount of industry synergy we had identified seemed to us to be insufficient. At a minimum, two out of every three mergers are dreadful failures. YDU have to have a very high level of synergies and efficiencies of scale, and this was not the case here." The other two reasons, he added, were differences in business culture and the difficulty in coming up with a true evaluation of the offer, because it was based partly on cash and partly on shares. "Do we have to go into a merger? No, we don't," Tirouflet argued, although he said he was not against a deal in principle. "We calculate our return on capital employed {ROCE} as a key performance indicator giving true performance," he explained, "and when we measure this, in more than half our businesses, we are better than the others." Rhodia's ROCE target for 2 0 0 3 which he conceded will be difficult to attain—is for 80% of its businesses to be among the most profitable in their respective industry segments, up from 50% now. For 2002, however, thefinancialtargets are more immediate: to improve the company's profitability Tirouflet makes a strong case. Whether it is accepted by his shareholders remains to be seen.—PATRICIA SHORT
"Do we have to go into a merger? No, we don't." whether Rhodia will eventually merge with another specialties producer, following the collapsed merger talks with DSM last month. At its results press conference, Jean-Pierre Tirouflet, Rhodia's chief executive officer, defended the spurning of ~ DSM's bid. The offer, in cash and shares, valued Rhodia at roughly $12.90 a share, a 50% premium over current levels. But Rhodia's executive team and board of directors agreed—unanimously according to Tirouflet—not to take it up. The fact that shareholders were not informed about the offer generated considerable wrath in the investment communi-
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FEBRUARY
1 1, 2002
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