AMCOL International Corporation

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AMCOL International Corporation

1500 West Shure Drive, Suite 500
Arlington Heights, Illinois 60004-7803
U.S.A.
Telephone: (847) 394-8730
Fax: (847) 506-6199
Web site: http://www.amcol.com

Public Company
Founded: 1924 as Bentonite Mining & Manufacturing Company
Employees: 1,134
Sales: $298.9 million (2002)
Stock Exchanges: New York
Ticker Symbol: ACO
NAIC: 212325 Clay and Ceramic Refractory Minerals Mining; 212399 All Other Nonmetallic Mineral Mining; 484120 General Freight Trucking, Long-Distance; 488510 Freight Transportation Arrangement

AMCOL International Corporation is one of the world's leading suppliers of bentonite and bentonite-related products and is also a major supplier of other specialty minerals. These materials have a variety of applications, such as a bonding agent for foundry sand molds, a lubricating agent for well drilling, a binder for pharmaceutical tablets, an additive in body lotions, and a clumping material in cat litter; these mineral operations generated 55 percent of 2002 revenues. Additionally, the company is the world leader in geosynthetic clay liners for landfills, sewage lagoons, and mining sites and also produces water treatment products and building materials such as moisture barriers; these environmentalrelated operations comprised 34 percent of 2002 sales. The remaining 11 percent of revenues came from AMCOL's transportation business, which provides long-haul trucking and freight brokerage services for both the company's other operations as well as outside customers. Through its Nanocor, Inc. subsidiary, AMCOL has been involved in the nanotechnology field since 1995, focusing on the use of nanometer-size (one-billionth of a meter) benton-ite-based particles as an additive for plastics. The company operates 33 production/research facilities in the United States, Canada, the United Kingdom, Poland, Australia, China, South Korea, and Thailand. About 30 percent of revenues are generated outside the United States.

Origins of the Bentonite Industry

AMCOL International Corporation was built on a single product: bentonite clay. Although various types and grades of bentonite clay were in existence, the material that the company began selling in the early 1900s was located in deposits as deep as 100 feet in the northern plains of the United States. That clay was formed from volcanic ash that, over millions of years, was transformed into a highly absorbent, pastelike substance. Native Americans used the clay in several applications, including as a soap for buffalo hide, an ingredient in soils for decorative plants, and possibly even as a dietary supplement during pregnancy. Later, settlers began using the clay to seal log homes, pack inflamed horses' hooves, and grease wheel axles.

In the late 1800s a Wyoming rancher named William Taylor sent some of the clay that he found on his ranch to the University of Wyoming to be studied. He first dubbed the clay "taylorite," but soon thereafter changed the name to "bentonite" because he had found it near Fort Benton. In the early 1900s that deposit became one of the first commercial bentonite mines in the world. The substance was originally mined from the earth's surface by horse and wagon, shipped to Chicago, milled into a fine powder, and processed into a skin-wrinkle cream called "Denver Mud"—the clay was still a chief ingredient in beauty mask products in the 1990s. Bentonite was later used in the manufacture of laundry detergent, asphalt, and insulation. Because few other commercial uses were known for the absorbent material, the bentonite industry languished for several years.

It was eventually discovered that bentonite could be used in foundries to improve the quality of molding sands used to manufacture metal castings. That important discovery was followed by the realization that bentonite was a useful additive to the slurry applied as a lubricant to oil and gas well drills. Among the few bentonite mining companies that emerged early was the Bentonite Mining & Manufacturing Company, which was located in the gold-mining town of Deadwood, South Dakota. The company was formed one night in 1924—by a group of frustrated gold miners in a local tavern—and was extracting bentonite from nearby deposits shortly afterward.

Enter Paul Bechtner, an entrepreneur, inventor, and workaholic with a background in the foundry industry. Bechtner was born in Wisconsin in 1882, served in a stateside cavalry unit during World War I after typhoid nearly took his life, and then started a chicken farm in his home state. When he tired of that venture, he took a job with a sand company, quickly rising to the position of vice-president and then promptly quitting in 1922. Next, he was employed by a metal casting company, where he worked on developing better foundry molds to make engine blocks for the burgeoning automobile industry. After experimenting with numerous additive and bonding materials, Bechtner became convinced that bentonite was superior to all other materials. Armed with that knowledge, Bechtner left his job and headed west.

Founding of American Colloid, 1927

Bechtner struck a partnership with the founders of Bentonite Mining in 1927. The two parties each agreed to contribute $15,000 to form two new companies: American Colloid Company, which would be headed by the original founders and based in Lead, South Dakota, and Chicago-based American Colloid Company Sales Division, which would buy bentonite from its sister company and sell it in the East for a profit. The name "Colloid" was derived from the Greek kolloid, meaning glue-like, and the English "colloid," which defined a degree of fitness. American Colloid built its first bentonite processing plant in Upton, Wyoming, in 1928 adjacent to the original mining facility. Bechtner named the bentonite material that he sold "Volcay," referring to its volcanic origin, and he even advertised that "Bentonite is our sole product."

Bechtner had finally discovered his niche. Indeed, during the 1930s and through the 1950s he became a sort of apostle of bentonite (Volcay). He worked relentlessly, often from early morning until late at night, to build the business. During the start-up, Bechtner effectively lived out of his Ford, traveling nonstop to promote his product before setting up shop in a Chicago apartment. Then, when he was not on the road he was writing literature and responding to customer inquiries in an effort to build American Colloid's client base. At a rate of about two tons per hour, the South Dakota mine generated about 740 tons of bentonite during its first full year of production. As a result of Bechtner's sales push, that figure bolted to more than 3,000 tons in 1929. In addition, demand was growing.

The Great Depression slowed American Colloid's growth. To make matters worse, a fire destroyed the Upton plant. But the enterprise managed to survive the downturn and even to record meager profits during most of the 1930s. In fact, Bechtner managed to turn the misfortune into a positive experience. When he and his crew were surveying the fire damage, one of the men angrily picked up a handful of bentonite clay and hurled it against a burned wall. The clay stuck to the wall extremely well, sending Bechtner's mental gears into motion. Within several weeks he had filed a patent covering the use of vermiculite bonded with bentonite as insulation. He then sold the patent to help pay for reconstruction costs. Although output rose during the early 1930s to more than 4,500 tons, American Colloid struggled. At one point, when the company was on the edge of bankruptcy, an investor named John Owen paid just $5,000 for 17 percent of the organization's stock to keep it afloat.

By 1935 American Colloid's shipments had grown to the point where a second processing plant had to be built. The second plant, located in Belle Fourche, South Dakota, was capable of producing granular and powder bentonite products, for which demand was growing. By 1936, American Colloid was shipping 9,000 tons from the new plant and about 8,000 from the old facility. Two years later, the sales and production divisions of American Colloid merged to form a single company: American Colloid Company. In the late 1930s, the company began mining and processing "southern" bentonite clay in Mississippi. Southern bentonite clay, found primarily in Mississippi and Alabama, was similar to material in the plains states, but the former had significant amounts of calcium rather than sodium and swelled much less when exposed to moisture. Southern bentonite was preferred over plains clay for many foundry applications, though combining the two materials often produced the best effect.

By 1940 American Colloid was selling more than 35,000 tons of clay annually. Because of the U.S. war effort, that figure leapt to 60,000 in 1941. Unfortunately, the company's profit growth failed to keep pace with output, largely because of increased competition from new bentonite manufacturers. As competition increased, the company's profit per ton plunged to 20 cents. Worse yet, in 1941 fire again destroyed the Upton plant. American Colloid quickly rebuilt as its order backlog swelled. Three years later, however, a third blaze wreaked havoc and leveled the Upton plant. Just as before, American Colloid rebuilt. Soon after the plant reopened, however, demand plunged with the end of the war. Bechtner and his discouraged associates struggled for a few years to reposition the company for growth in the postwar era.

Company Perspectives:

Our strong balance sheet will continue to be a tool for generating growth for the Company independent of the general economy. Our business segments provide us with numerous opportunities not only for strategic acquisitions, but also for investment in organic growth. In addition, we look to our global presence to build upon our capabilities with customers around the world to expand our competitive position in existing markets.

New Markets, New Products in the Postwar Era

Fortunately, a major new market opened up for American Colloid in the late 1940s. Because a competitor's patent expired, American Colloid was able to start selling bentonite as an ingredient in oil-drilling lubricants. That new product line quickly took off and the company was forced to expand its manufacturing operations and headquarters to keep up with demand. Despite a fourth fire—this time at the Mississippi plant—and a 1954 tornado that wrecked the rebuilt facility, the company steamed into the mid-1950s with record revenues and profits. Boosting sales were new minerals being mined and processed by Bechtner's team including lignite/leonardite, a type of low-grade coal used in the petroleum industry and later as a fertilizer. To keep pace with gains, the company opened another plant in Mississippi in 1957.

Paul Bechtner died from a stroke in 1961 at the age of 79. Until his death, he had been intimately involved in the leader-ship of the company, overseeing its growth from a single plant to the world's largest bentonite producer with sales throughout the world. Bechtner was succeeded by Everett Weaver. Weaver had joined the company straight out of high school in 1940. After a two-year stint in Europe during the war, he had returned to American Colloid to develop the company's marketing program for the oil well drilling industry and to manage some manufacturing plants. He was also joined at the company by his younger brother, Bill. Everett was handpicked by Bechtner to lead the company and assumed the chief executive slot in 1960.

Under Weaver's direction, American Colloid continued to flourish. The company opened a new Alabama calcium bentonite processing center in 1964. In 1965, moreover, the company inaugurated its first overseas production plants, which were located in Duisburg, Germany, and Birkenhead, England. In addition, Weaver purchased a Scottsbluff, Nebraska-based trucking company in 1963 as part of an effort to vertically integrate the company and reduce distribution costs. Everett Weaver handed off some of the day-to-day control of American Colloid to his brother, Bill, in 1968. Before doing so, he added a new production facility in Lovell, Wyoming, initiated a distribution agreement with a Japanese company that eventually became American Colloid's biggest overseas customer, and broke ground for a new production facility in Granite City, Illinois. That new facility reflected American Colloid's increasing emphasis on the growing well-drilling market.

The Weaver brothers continued to expand the company's reach overseas in the 1970s. In the early 1970s they oversaw the creation of divisions in Spain and Australia, for example. They also purchased a foundry blend processing center in Albion, Michigan, that allowed the company to create new products in demand by the foundry industry. Throughout the 1970s the brothers helped to boost the company's international exposure and to raise sales and profits. Importantly, American Colloid benefited from growing demand, among oil and gas drillers, for its lubricating mud products. That increase was largely a result of the OPEC oil embargo that began in 1973 and buoyed the U.S. oil industry through the early 1980s.

Indeed, American Colloid's revenues went from $20 million in the early 1970s to more than $100 million by the decade's end. During the same period, the company's workforce increased from 450 to more than 1,000. By the early 1980s, at the height of the oil industry boom, American Colloid was shipping more than 80,000 tons of its clay-based gel each month. To keep up with growing demand, the organization invested millions of dollars in new facilities. At the same time, American Colloid began a concerted effort to diversify its product lines to include specialty, high-margin items. The Weaver brothers relinquished hands-on control of the company when it was at its height in terms of sales and profits. That left Roy Harris, who became chief executive in 1981, holding the bag when the bottom dropped out of the U.S. oil industry.

Because American Colloid had become so dependent on the oil industry, but also because of a downturn in its industrial and export divisions, the early 1980s dealt an ugly blow to the company. Almost instantly, orders from the company's oil accounts stopped. American Colloid's management was stunned by the almost unimaginable drop in business. Sales plunged from $134.3 million in 1981 to $77.3 million in 1986. As management scrambled to cut costs and pay its bills, the company's workforce shrunk from 1,250 to just 475 during the same period. American Colloid was eventually forced to shutter its gleaming, eight-year-old, state-of-the art bentonite plant in Malta, Montana.

Key Dates:

1924:: Group of frustrated gold miners enter the bentonite mining industry through the formation of Bentonite Mining & Manufacturing Company, based in Deadwood, South Dakota.
1927:: Entrepreneur Paul Bechtner joins with the founders of Bentonite Mining in transforming that company into American Colloid Company, with a sales division established in Chicago.
1928:: Company builds its first bentonite processing plant in Upton, Wyoming.
1963:: A Scottsbluff, Nebraska, trucking company is purchased.
1965:: First overseas production plants—in Duisburg, Germany, and Birkenhead, England—are inaugurated.
1986:: Chemdal Corporation is established as a subsidiary to produce and market superabsorbent polymer.
1987:: Company goes public.
1988:: Absorbent Clay Products, Inc., an Illinois cat litter company, is acquired.
1991:: Colloid Environmental Technologies Company (CETCO) is formed as a subsidiary.
1995:: Company changes its name to AMCOL International Corporation; Nanocor, Inc. is created as a subsidiary focused on nanotechnology.
2000:: Chemdal is sold to BASF Aktiengesellschaft for $656.5 million; a significant portion of the proceeds are distributed to shareholders via partial liquidation involving payment of $14 per share.

Diversifying into High-Margin Specialty Products, Late 1980s and 1990s

Roy Harris, one of the last top executives to have worked with Bechtner in the early days, stepped aside in 1985. He was replaced by John Hughes, who would face the task of revitalizing American Colloid and leading it onto a new path toward growth and prosperity. The hard-charging, outspoken Hughes had joined American Colloid straight out of college in 1965 as a research chemist. Almost from the start, he had pressed top management to reduce its dependence on the oil well market. In fact, it was he who had pushed for American Colloid to diversify into other specialty products derived from bentonite, rather than commodity goods, during the late 1970s. As he rose through the ranks, Hughes became known as a tough taskmaster, and some executives had even left the company upon discovering that they would be required to report to him.

After the oil market crashed, Hughes was tapped to help engineer the company's consolidation and workforce reduction. His efforts during that period only added to his intimidating presence within the company. Still, Hughes's aggressive, hard-driving style was exactly what American Colloid needed during the mid-1980s to turn it around. Just as important as his management style and personality, though, was his strategy. "When he first started … John had a dream: to develop a line of specialized products and decentralized management," explained Everett Weaver in the May 1989 Business Marketing. "He doesn't waste time when he knows what he wants to do," Weaver said.

Indeed, Hughes did not waste time. In 1986 he moved the company's corporate offices to Arlington Heights, Illinois, demolished the Malta plant, sold the plant in Germany, and opened a new polymer processing operation in Wyoming. The company raised cash in 1987 by going public for the first time, and Hughes launched aggressive new cost-control and quality initiatives. As American Colloid slashed costs and reorganized during the mid-1980s, Hughes pursued his goal of developing a diverse mix of high-margin specialty applications for bentonite. To that end, the company set up several relatively autonomous industry-specific divisions designed to attack key market niches. The units usually had about 12 people, depending on the market, and were headed by a profit manager. For example, American Colloid's desiccant division was set up to develop and market clays used to absorb moisture in packaging. Similarly, in 1988 American Colloid purchased Absorbent Clay Products, Inc., a cat litter company in southern Illinois. Other bentonite niches included winemaking and new uses in the fertilizer industry.

An important new arena for American Colloid beginning in the late 1980s was an absorbent powder that it sold primarily to manufacturers of diapers and feminine products. The powder was first developed in Japan for the drilling industry, but American Colloid managed to get rights to the product in all countries but Japan and was marketing the powder for new specialty applications. The amazing powder was capable of expanding to hold more than 40 times its volume in water, making it potentially useful in a range of applications that Hughes believed American Colloid could develop and market. An added benefit of the polymer was that it could be shipped much more inexpensively than bentonite. In 1986 Hughes formed a subsidiary—Chemdal Corporation—to produce and market the superabsorbent polymer. Chemdal Limited, a separate European division of that subsidiary, was established in Birkenhead, England, in 1989. That same year, American Colloid purchased a feed processing operation in York, Pennsylvania, which was converted into a foundry blend processing center. The firm's cat litter business received a large boost through the 1991 patenting of a breakthrough clumping cat litter product (also known as "scoopable" cat litter); scoopable cat litter quickly captured more than 40 percent of the U.S. market by the mid-1990s. American Colloid also created a new subsidiary in 1991 called Colloid Environmental Technologies Company (CETCO). CETCO specialized in groundwater chemicals, building materials, wastewater treatment products, and other environmental products.

Meanwhile, the company continued to cut operating costs and to update manufacturing facilities. The results of Hughes's strategy were quickly visible. After falling to a 1980s low of $77 million in 1986, revenues shot up to $85 million in 1987 and then to $111 million in 1988; the oil well industry accounted for less than 10 percent of those sales. Profits rose similarly, jumping 21 percent in 1987 and then 20 percent in 1988 to a healthier $4.6 million. The profit gains reflected Hughes's financial goal of raising sales at double the rate at which operating costs increased. As demand for American Colloid's new products surged, revenues continued to climb to $125 million in 1989 and then to nearly $150 million in 1991.

Early 1990s gains were largely the result of the success of American Colloid's superabsorbent polymer division, Chemdal. That division was churning out 20,000 tons of product annually by 1993 after more than doubling sales to $31 million between 1990 and 1992; by 1994 Chemdal was generating onequarter of the company's revenues. The kitty litter division was also posting gains. At the same time, American Colloid's bentonite operations were enjoying steady sales and profit jumps, and they continued to account for the bulk of the company's income. As American Colloid expanded production capacity and bolstered product lines, sales reached $265.4 million in 1994, far surpassing the company's revenues during the oil-industry peak of the early 1980s. Meanwhile, net income rose 17 percent to more than $15 million.

During 1995 American Colloid changed its name to AMCOL International Corporation. CETCO expanded that year through the acquisition of Claymax Corporation, a producer of geosynthetic clay liners for landfills, sewage lagoons, and other applications. AMCOL also formed a new subsidiary called Nanocor, Inc. that year. Nanocor was created to pursue opportunities in the nascent field of nanotechnology, specifically the development of nanometer-size (one-billionth of a meter) bentonite-based composites as additives for plastics. Nanocor began building its first production facility in Aberdeen, Mississippi, in 1997.

Late in 1997 CETCO acquired two France-based distributors of its geosynthetic clay liners, and AMCOL also acquired the cat litter business of LaPorte PLC, which included Cassius, a well-known European brand. Then in January 1998 Chemdal acquired the superabsorbent polymers business of the U.K. firm Allied Colloids Group PLC, securing a strengthened position in the European market. Later in 1998, Chemdal began building a new superabsorbent polymers plant in Thailand. AMCOL also gained a foothold in the bentonite market in the Middle East through the purchase of a minority interest in two Egyptian companies. In April 1998, meantime, the company sold its traditional (i.e., nonscoopable) cat litter business to Oil-Dri Corporation of America. In August of that year, Hughes was promoted to chairman and CEO, while Larry E. Washow was named president and chief operating officer. Washow had most recently served as senior vice-president and COO, after a decade-long stint as the head of Chemdal. Finally, in September, AMCOL's stock was shifted from the NASDAQ to the New York Stock Exchange.

AMCOL gained a presence in the bentonite industry of south Asia in May 1999 via the purchase of a 20 percent stake in Ashapura Minechem Limited of India. That same month, CETCO announced that it would construct a manufacturing facility for geosynthetic clay liners in Szczytno, Poland, to pursue opportunities in Eastern Europe.

A Chemdal-less AMCOL, Early 2000s and Beyond

By the late 1990s, Chemdal had grown to become AMCOL's largest business, accounting for about 42 percent of revenues in 1998, compared to nearly 32 percent for the company's traditional minerals operation and 20 percent for the CETCO environmental operation. Chemdal was at a disadvantage compared with its main competitors, however, because neither it nor AMCOL was a producer of the main raw material of superabsorbent polymers, acrylic acid. AMCOL began investigating the potential of gaining this vertical integration through entering the production of acrylic acid. But while it was doing so, Germany's BASF Aktiengesellschaft approached AMCOL about a possible sale of Chemdal. AMCOL's management concluded that it was in the best interests of the company's shareholders to sell the unit, and in November 1999 the corporation reached an agreement with BASF. The transaction was concluded in June 2000, with BASF paying AMCOL $656.5 million. AMCOL recorded a net gain of $316.3 million on the sale. A significant portion of these proceeds was distributed to the company's shareholders through a plan of partial liquidation involving a payment of $14 per share. In May 2000, meantime, Washow was promoted to president and CEO, with Hughes remaining chairman.

Post-Chemdal, AMCOL was a much smaller company—2001 revenues of $275.3 million amounting to less than half of the firm's record total of $552.1 million two years earlier. The company now had two main business operations: minerals and the CETCO environmental business. There were further strategic adjustments to the remaining operations. Late in 2000 AMCOL's U.K. cat litter business was closed down, and early the next year the firm sold its U.K. metalcasting business—a jettisoning of two underperforming units. AMCOL also seriously discussed selling its Nanocor subsidiary but instead began entering into strategic alliances with other companies in order to develop commercial applications for the unit's nanocomposites. In 2001 a subsidiary called AMCOL Health & Beauty Solutions, Inc. was established to develop mineral additives for use in personal care products, cosmetics, and pharmaceutics. In May of the following year the corporation completed the acquisition of Colin Stewart Minchem Limited (CSM), a U.K. mineral and chemical company specializing in intermediate products, industrial minerals, inorganic chemicals, and additives for laundry detergents, packaging, oil exploration, construction, and water treatment. Annual sales for CSM were about $25 million. The more focused AMCOL of the early 2000s seemed likely to continue to seek out similar avenues of organic and acquisitive growth.

Principal Subsidiaries

ACP Export, Inc. (U.S. Virgin Islands); AMCOL Europe Limited (U.K.); AMCOL Health & Beauty Solutions, Inc.; AMCOL Holdings B.V. (Netherlands); AMCOL (Holdings) Ltd. (U.K.); AMCOL Holdings Canada Ltd.; AMCOL Specialties Holdings, Inc.; American Colloid Company; Ameri-Co Carriers, Inc.; Ameri-Co Logistics, Inc.; Ashapura Volclay Private Limited (India; 50%); Baker Sillavan Limited (U.K.; 50%); CETCO (Europe) Limited (U.K.); CETCO Australia Pty. Ltd.; CETCO Holdings B.V. (Netherlands); CETCO Korea Ltd.; CETCO-POLAND Sp. z o. o; Colin Stewart Minchem Limited (U.K.); Colloid Environmental Technologies Company; Montana Minerals Development Company; Nanocor, Inc.; Nanocor, Ltd. (U.K.); Silgel Packaging Limited (U.K.); Volclay Dongming Industrial Minerals Co., Ltd. (China; 75%); Volclay Holdings B.V. (Netherlands); Volclay International Corporation; Volclay Korea Ltd.; Volclay Pty. Ltd. (Australia); Volclay Siam Ltd. (Thailand).