The General Chemical Group Inc.

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The General Chemical Group Inc.

One Liberty Lane
Hampton, New Hampshire 03842
U.S.A.
Telephone: (603) 929-2606
Fax: (603) 929-2404
Web site: http://www.genchem.com

Public Company
Incorporated: 1988
Employees: 1,041
Sales: $256.8 (1999)
Stock Exchanges: New York
Ticker Symbol: GCG
NAIC: 32518 Other Basic Inorganic Chemical Manufacturing

The General Chemical Group Inc. is a leading producer of industrial chemicals, namely soda ash, both natural and synthetic, as well as calcium chloride. Soda ash is the raw material essential in making such staples as paper, glass, textiles, and foods. The company’s soda ash, also the raw material for sodium bicarbonate, is sold to such manufacturers as Owens-Illinois, Church & Dwight, and TOSOH, and is used in products ranging from deodorants, toothpaste, and laundry detergent, to drinking glasses, insulation, and computer screens. Calcium chloride, on the other hand, a byproduct of synthetic soda ash, is perhaps best known for melting ice in winter and controlling road dust in summer. It is also used in petroleum refining, food processing, asphalt recycling, newsprint de-inking, water treatment, and construction. Chemical giant DuPont purchases General Chemical’s calcium chloride for use in producing its Nomex brand fiber, which, in turn, is used in creating flame-resistant clothing. In April 1999, General Chemical underwent a dramatic reorganization in which a significant portion of its operations—namely, its performance products for the pharmaceutical, personal care, and environmental industries—were spun off as the independent GenTek Inc.

The Early Years: 1899–1920

The General Chemical Group traces its roots to 1899 when The General Chemical Company was formed through the merger of 12 already well-established chemical producers, including the Nichols Chemical Company. Dr. William H. Nichols, a highly respected chemist, and his son, Charles W. Nichols, orchestrated the merger, and the elder Nichols became the new company’s first chairman. Headquarters were located in New York City, and the company billed itself as “manufacturing chemists” selling “high grade sulphuric, muriatic, nitric, and acetic acids,” as well as sulphate of alumina and mixed acid for explosives. Advertisements also highlighted the benefits of the newly merged organization: “by means of our works being located in all sections of the country, we can give buyers benefits of lowest freight rates.”

In 1900, the new concern was producing about 15 chemicals in a fledgling industry rapidly shaped by new technologies; by 1920, the General Chemical product line would swell to over 100. The company pioneered many of the processes used in chemical manufacturing. In 1901, for example, the company established the world’s first experimental contact sulfuric acid plant. The following year, it began to use bauxite in the production of alum, believed to be the metal’s first such commercial application.

The company quickly expanded during the first decades of the 20th century. By 1903, two giant commercial sulfuric acid plants had been erected in Edge water and Camden, New Jersey. General Chemical also built several other major production plants including, in 1909, its first West Coast plant, the Bay Point Works in the San Francisco Bay area. In 1912, the company’s massive Delaware Valley Works in Claymont, Del-aware, and Marcus Hook, Pennsylvania, opened. With its pervasive presence, General Chemical played an important support role in World War I, supplying Allied troops with critical ingredients for munitions and other supplies.

The Allied Chemical Years: 1921–85

In 1921, General Chemical was one of five major U.S. chemical companies that came together to form Allied Chemical & Dye Corp. The merger, one of the largest to that date, included the Solvay Process Company (maker of alkalis), Semet-Solvay (builder and operator of coke ovens), the Barrett Company (maker of coal tar products), and the National Aniline & Chemical Company (supplier of aniline oils used in making dyes). General Chemical’s founder, W.H. Nichols, was once again a leader in effecting the merger, and he was named chairman of Allied. As a diversified chemical producer, Allied was a dominant domestic and international chemical company throughout most of the 20th century. General Chemical retained its identify as a division within Allied during this period.

As part of Allied, General Chemical thrived, even during the Great Depression. Allied maintained large reserves of liquid assets, no debt, and paid dividends yearly. However, shortsighted management on the part of Nichols’s successor at Allied, Orlando F. Weber, resulted in little to no budget for researching new products and applications. Weber’s era as chairman was also characterized by intense secrecy; financial reports were kept vague and confidential, and Allied executives were forbidden to join trade associations or be featured in the media. Some speculated that Weber’s autocracy created a knowledge vacuum at Allied, an intentional move to keep Dr. Nichols’s son, Charles Nichols, from taking control of the company.

Despite managerial difficulties at Allied, General Chemical performed well, expanding its operations nationwide and building large production plants and renovating others. New products were introduced and processes for producing heavy chemicals, including alum, soda ash, and a spectrum of sulfur-based chemicals were improved and refined. During World War II, General Chemical facilities in Bay Point and Richmond, California, Claymont, Delaware, Point Pleasant, West Virginia, and else-where increased production to meet war efforts. Several company operations were awarded the Army-Navy “E” award for excellence four years in a row.

However, while it thrived filling war effort needs, General Chemical and its Allied associates experienced a general decline after the war; competition stiffened, and company policies and facilities were neglected and became outdated. Following years of uncertain direction and ever-changing leadership, Allied began a turnaround in 1985, when it merged with Signals Companies Inc. The new corporation, organized as a chemicals and aero-space company, was christened AlliedSignal Corporation.

A New Company: 1986–96

The following year, AlliedSignal spun off 35 of the newly merged company’s more marginal businesses in a then-record $1.2 billion initial public offering (IPO) to the newly formed Henley Group, Inc., headed by Wall Street merger and acquisition specialist Michael D. Dingman. Among these businesses were units from the original General Chemical Company, which reemerged later that year as a stand-alone company.

Christened “Dingman’s Dogs,” almost all of the Henley Group’s troubled companies were turned around within 18 months and sold for a profit. “Followed by a trail of angry shareholders who claim he enriched himself at their expense,” according to Charles P. Wallace, writing in Fortune, Dingman later moved to the Bahamas where he continued to make international investments and to serve as chairman of Fisher Scientific International, Inc., a world leader in supplying products and services to research and clinical laboratories.

Leading the turnaround in the fortunes of many of these companies was Paul M. Montrone, formerly executive vice-president of AlliedSignal Inc., who later became chairman and chief executive officer of Wheelabrator Technologies, Inc. as well as president of the Henley group. According to his official biography, Montrone “regrouped Henley’s 35 disparate businesses into several successful public companies.” In 1987, business columnist Tom Peters wrote that among the companies that saw a much-improved bottom line as a result of the Henley Group’s activities were Fisher Scientific, “moving from a $99 million loss to a $99 million profit; Wheelabrator, from plus $10 million to plus $93 million; and General Chemical, from minus $4 million to plus $87 million.”

By the turn of the 21st century, Montrone had become chairman and CEO of Fisher Scientific and chairman of GenTek Inc., ProcureNet Inc., and Prestolite Wire Corp. He was also chairman of The General Chemical Group, which had been formed in 1988 in Delaware. In 1999, Montrone owned just under half of General Chemical’s equities, including all of its Class B stock, and, thus, had voting control of the company. According to a 1999 Wall Street Journal article, he did not take a salary from General Chemical.

Montrone was also a managing director of Latona Associates Inc., a private merchant bank. According to the Wall Street Journal (June 23, 1997), Latona provided “‘strategic guidance and advice’ to General Chemical on financings and other matters. General Chemical pays Latona $5.6 million yearly and will pay additional fees at investment banking rates in the case of any acquisitions Latona advises on.” All of the companies headed by Montrone, except ProcureNet, were headquartered on a spacious campus in Hampton Falls, New Hampshire.

Company Perspectives:

The General Chemical Group is a leading producer of soda ash and calcium chloride. Following the spinoffofits manufacturing and performance products businesses in 1999, General Chemical has become a smaller, more focused company committed to creating value as a low-cost, high-quality producer of its core industrial chemicals.

Going Public: 1996

In May 1996, The General Chemical Group went public with an initial public offering (IPO) of 7.5 million shares, with each share priced at $17.50 on the New York Stock Exchange. Salomon Brothers were the lead underwriters of the IPO, which raised $41 million for the company. Five million shares were sold on behalf of a single shareholder, the offshore Stonor Group, a Liberian corporation with a Cayman Island parent that at least one analyst believed represented Michael Dingman. Although 34 percent of General Chemical’s equity was available for sale, its Class B shares were retained by its original owners. Less than five percent of the firm’s voting rights were available to new shareholders, with Montrone and the Stonor Group retaining control of 95.2 percent of voting rights.

Acquisitions and Mergers: 1997–99

In the late 1990s, several acquisitions were actively pursued by General Chemical Group. In June 1997, for example, the company announced plans to acquire privately held Peridot Holdings, a manufacturer of sulfuric acid, water treatment chemicals, and aluminum sulfate products. At the time, Peridot had sales of about $43 million and operated plants in Wayne, New Jersey, and Augusta, Georgia. Terms of the deal were not disclosed.

The company also acquired Sandco, a Canadian manufacturer of engine parts for the North American auto industry. A producer of stamped automobile-engine components, principally rocker arms and roller followers, the company had 1997 sales of approximately $10 million. Sandco complemented another General Chemical subsidiary, Toledo Technologies, a major manufacturer of valve-train components.

In February 1998, General Chemical purchased another privately held company, Reheis Inc. of Berkeley Heights, New Jersey, again for an undisclosed price. Reheis, a producer of specialty chemicals, had 1997 sales of almost $60 million and was a leading supplier of the aluminum-based active ingredients in antiperspirant and antacid markets. The deal included two facilities in the United States and one in Dublin, Ireland.

A year later, in early 1999, General Chemical acquired Defiance, Inc., a major manufacturer of precision bearings for the auto industry. In March 1999, General Chemical acquired all outstanding shares of Toronto-based Noma Industries Ltd. With 1998 sales of approximately $265 million, Noma was a leading manufacturer of electrical wire and components for the automotive, appliance, and electronic industries.

Spinoff of GenTek: 1999

In a major strategic move to consolidate its business focus on core industrial chemicals, particularly soda ash and calcium chloride, General Chemical announced in February 1999 that it intended to spin off its specialty chemicals and auto parts businesses into a new $440-million-a-year company, GenTek Inc. The new firm comprised aluminum chemicals, wet chemicals for electronics, Reheis, Peridot Holdings, and the company’s subsidiaries related to the auto parts business. The spinoff was completed on April 30, 1999.

The Wall Street Journal reported on January 26, 1999, that Montrone believed the new company would be more highly valued by investors because, he noted, “it won’t have the millstone of commodity chemicals.” He also said that GenTek would embark on an active acquisitions course. In fact, GenTek did begin to acquire a string of related companies almost immediately. In August 1999, the new company purchased Krone AG from Jenoptik AG of Frankfurt for approximately $225 million. Krone was described at the time as a leader in quick-connection technology for voice and data networks. A year later, GenTek announced the pending acquisition of the Digital Communications Group of Prestolite Wire Corporation. Prestolite and Krone had previously worked together in developing products for the data communications market. The previous June, GenTek had acquired an 81 percent controlling interest in ConX Corporation, an emerging leader in the development of auto-mated cross-connect and loop management systems for DSL and other broadband service providers. The company also purchased Vigilant Networks for $12 million from LeCroy Corporation, a leading supplier of digital oscilloscopes. Vigilant provided products and services that used advanced signal acquisition technology. Finally, in October 2000, GenTek and Krone, by now its principal telecommunications subsidiary, announced a $40 million expansion plant for the company’s copper and fiber optic cable manufacturing facilities in Sidney, Nebraska and North Bennington, Vermont.

Montrone, as chairman of GenTek, said that the expansion typified by the two fiber optic plants was essential to the company’s growth strategy. That strategy appeared to be paying off. For the first six months of 2000, GenTek sales increased 86 percent to $642.1 million.

Meanwhile, due to higher energy costs, lower calcium chloride volumes attributed to wet spring weather, and lower soda ash prices, General Chemical posted a net loss of $1 million on sales of $120 million in the first six months of 2000. For the corresponding period of 1999, net income had been $3.3 million on sales of $130.6 million. According to General Chemical’s 1999 Annual Report, the company received notice from the New York Stock Exchange (NYSE) on February 28, 2000, that it was no longer in compliance with NYSE requirements that a listed company have a market capitalization of not less than $50 million and total shareholders’ equities of not less than $50 million. However, on June 21, 2000, General Chemical announced it would remain on the NYSE through September 2001, subject to quarterly monitoring. If the company proved unable to meet the exchange’s financial requirements by September 2001, it faced delisting from the New York Stock Exchange.

Key Dates:

1899:: The General Chemical Co. founded.
1921:: General Chemical Co. merges to form Allied Chemical & Dye, Corp.
1985:: AlliedSignal Corporation formed.
1988:: The General Chemical Group is incorporated in Delaware.
1997:: Company acquires Peridot Holdings, Inc.
1998:: Sandco Automotive Ltd. and Reheis, Inc. are acquired.
1999:: General Chemical is split into two: The General Chemical Group and GenTek Inc., parent of the General Chemical Corporation.

Led by Chairman Montrone, Vice-Chairman Paul M. Meister, and President and CEO John M. Kehoe, Jr., management at General Chemical remained optimistic regarding the company’s future. The company looked to focus on finding new uses for soda ash and calcium chloride, as well as new distribution channels for its products. Cost-reduction and improved efficiency in operations also became integral to the newly slimmed-down chemical company. In August 2000, General Chemical announced that, through its General Chemical Canada Ltd. subsidiary, it would establish a joint venture with Tangshan Sanyou (Alkali) Group Ltd. to produce, market, and sell calcium chloride throughout Asia. Capacity at the site was expected to be upgraded, using General Chemical’s technology, from 30,000 metric tons/year to 100,000 metric tons of calcium chloride annually at a cost of about $10 million. The joint venture would also handle sales of Tangshan Sanyou’s soda ash output, estimated at about 700,000 tons a year.