This is the second time in two weeks that I have written about a significant business person who died recently. Following the recent blog on Ingvar Kamprad, the founder of IKEA, I was saddened to hear that Jon Huntsman, the founder of Huntsman Corporation, passed away on the 2nd February.
Huntsman Corporation is a major global chemical company and has been a client of MTP for many years.
However Jon Huntsman was not only successful at making money, which we explore later, but was a philanthropist and was devoted to help find a cure for cancer. In 1995 he founded the Huntsman Cancer Institute with $100million. Today it has raised over $2billion, much from Jon Huntsman and his wife.
In order to be able to make such generous charitable contributions one has to make some money and it is interesting, at least to me, to consider how Huntsman did that.
After starting as the Huntsman Container Corporation, which amongst other things invented the ‘clamshell’ container used by many businesses including McDonald’s, the business grew through a series of well-timed and successful acquisitions. In the 1970s acquiring and disposing of businesses by a holding company was seen as a way of creating significant shareholder value. Today it is often regarded as the least effective way of doing so, due to the availability of funds, the amount of information available, and the number of competing companies interested in bidding for any target.
Jon Huntsman has done what many have failed to do over the past 40 years. He proved to be a very successful buyer and seller of businesses. That is not to say that value has not been created in other ways but it is increasingly rare today, when capital markets are so liquid and well informed, for value to be created in this way.
Below are some of the ways that wealth was created. Much of the material is described in Jon Huntsman’s autobiography ‘Barefoot to Billionaire’.
Acquisition from Texaco
Huntsman acquired the primo propylene oxide/MBTE plant at Port Neches Texas from Texaco in 1997. This was acquired for $580 million (but only required $25 million of Huntsman cash). In two years it had increased in value from $580 million to $900 million. An increase in value of $490 million for a cash investment of $25 million is a stellar return, to say the least.
Acquisition of business from ICI
In late 1990 Charles Miller Smith, former CFO of Unilever, became ICI’s Chairman. ICI purchased $10 billion worth of Unilever chemical businesses. The high level of borrowing that arose as a result of these acquisitions, coupled with an economic slowdown meant that ICI needed to sell some business assets.
ICI wanted to sell the commodity petrochemical assets and they were scheduled for auction. These were not attractive to Huntsman, but the polyurethane and titanium dioxide businesses were. ICI found themselves in a difficult situation Jon Huntsman describes the conversations in his autobiography: ‘If we took the money-losers we could purchase the titanium dioxide division. I said we also desired the polyurethane group. That, too, was possible came the reply.’
So Huntsman was able to buy both the polyurethanes business and the titanium dioxide business, both of which form a very significant part of Huntsman Corporation today.
Events of the early twenty first century
Early in the twenty first century the chemical industry experienced the worst crisis in its history. The price of petrochemical products rose, demand for US goods fell between 10 and 20 per cent in less than a year, and the US was heading into recession. Then we witnessed the events of September 11th 2001.
Huntsman almost went bust. As a private company they could not issue equity. However, David Maitlin CEO of a division of Credit Suisse First Boston had a proposal. He purchased the bonds and converted them into equity. Maitlin Patterson Global Advisors then owned 62.5% of the equity.
This led to the survival of the business and by 2004 a restructuring had been successful.
It was now time to take America’s largest family owned and operated business public. However, this led to another difficult period.
Apollo Global Management, a takeover group were one of a number of players who expressed an interest in buying Huntsman. Apollo planned to sell Huntsman’s commodity businesses and combine the speciality businesses with Hexion Speciality Chemicals.
In 2007 the worst US economic recession since the Great Depression began. To cut a long complex story short Apollo/Hexion, having agreed a deal, tried to back out. The chapter in Jon Huntsman’s book describing these events is titled ‘The Double Cross’. His opinion is pretty clear. The merger was terminated and, after much legal action, Huntsman received significant settlements from both Apollo and the banks involved. In the end Huntsman shareholders did well, receiving a sum of more than a third of the agreed sale proceeds and still owning 100 percent of the company.
The above events give a flavour of how Jon Huntsman was able to create value from which he was able to contribute a significant proportion to the fight against cancer. I know, from personal experience, that anyone affected by this disease is very grateful.