The Alchemy of Leveraged Buyouts

The successful chemical LBO practitioners are an intriguing bunch. Other than a few anecdotal stories, not much is known as to what makes them tick. Some of them, for example, Gordon Cain and Jon Huntsman, have become legendary by executing a series of deals and making themselves and many others around them very rich in the process. They could easily pass for the perfect hosts of a new game Who Wants to Be a Millionaire in Chemicals  

A former US Navy officer and aide to President Nixon, Huntsman started out in 1970 with a foam-packaging business and bought his first chemical plant from Shell in 1982. He has since built up the world s largest privately held chemical company through a series of LBO deals, for example, Texaco s chemical operations in 1994-97 and a huge chunk of ICI s chemical businesses in 1999. 

We believe that the visible successes of Cain, Huntsman, and a few other industry insiders (e.g., George Harris, Hal Sorgenti) have in recent years attracted a lot of imitators, especially financial buyers, into the chemicals sector (Fig. 8.1). Industry observers point out that given the low public valuations of chemical assets and the unprecedented levels of uninvested funds available today (shown in Fig. 8.2), chemical businesses make ideal LBO targets. Their logic is that the basic industrial sectors, such as chemicals, have reasonably predictable cash flows, unlike the 

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In a series of articles in 2001, Butler, Samdani, and McNish described the increase in LBOs in the chemical industry over the second half of the 1990s (Butler, P. Samdani, G. S. et al.). They labeled this phenomenon the Alchemy of Leveraged Buyouts and predicted a natural convergence between traditional chemical corporations and their new financial competitors in terms of management procedures and skills as well as how they created value. 

Samdani, G. Sam, Butler, Paul, McNish, Rob. 2001. The Alchemy of Leveraged Buyouts. 

Butler, Paul, Samdani, G. Sam, McNish, Rob. The Alchemy of Leveraged Buyouts. In Budde F., Farha G.A., Frankemolle H., Hoffmeister D.F, Kramer K. (Eds.), Value Creation Strategies for the Chemical Industry. Pp. 93-107. Weinheim, Germany Wiley-VCH Verlag. 2001. 

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