Union Carbide Corp. has traditionally gone out of its way to avoid the limelight.
Its headquarters here, for instance, is secluded in acres of thick woods, making it impossible to see the sprawling complex from surrounding roads.
Its profile is so low that most people probably don`t know Carbide makes such popular consumer products as Glad garbage bags, Eveready batteries, Prestone antifreeze and Simonize car wax.
But old ways are dying quickly at Carbide, partly by design and partly by pressure. And although the side effects of the fatal gas leak last December at Carbide`s Bhopal, India, plant linger–the company still hasn`t reached a settlement related to 2,000 deaths there–Carbide is ready to move on.
That became evident a few weeks ago, when the company unveiled a major restructuring program that, among other things, calls for closing obsolete plants, eliminating thousands of jobs and selling unprofitable businesses. The company also plans to buy back 10 million of its 70.4 million outstanding common shares, using a $500 million surplus in its pension fund to help pay for them.
Chairman Warren Anderson, 63, whose reputation and legacy are on the line, is scrapping the structure he helped build to create a leaner, more aggressive ”machine,” capable of generating the kind of earnings and returns for which the investment community has been clamoring.
”We`re going to be a company that`s easy to buy from, that slims down and gets the customer,” he said. ”And we`re going to do this quickly.”
Anderson, a former chemicals and plastics salesman, tried to emphasize the importance of the restructuring when he told analysts: ”I don`t have a lot of time to sit around and wait for this to happen.”
He added that he ”struck a deal” with some of the company`s top managers. He told them: ”I clean out shop, they produce. And if they don`t produce, I`ll find someone who will. I only have 1 1/2 years around this place, and I want it done before I get out.”
Nobody can remember Carbide moving so swiftly, and with such a sense of urgency, as it has in the last few weeks. With the exception of when it sold its European petrochemicals business to BP Products for a healthy profit in the late 1970s, Carbide`s financial performance has been lackluster.
Its earnings growth has trailed the industry pace; its paltry return on equity of 6.8 percent last year was far below the industry average of 11.5 percent.
While its competitors were reorganizing with an eye toward improving cash flow rather than earnings, Carbide was standing still. Then came Bhopal, followed by a series of smaller chemical leaks at plants in the United States. Luck hasn`t been on Carbide`s side this year.
Why, then, has it taken the company so long to come up with a radical restructuring plan? ”That`s like asking Christopher Columbus why it took him so long to discover America,” said Clayton Stephenson, Carbide`s executive vice president and chief financial officer, a native of Northbrook.
Was it simply a coincidence that the company announced its restructuring program, which it says is designed to enhance shareholder value, at the same time New Jersey-based GAF Corp., a much smaller chemicals firm, was buying up Carbide`s stock? GAF now owns about 10 percent of Carbide, and some observers think GAF`s chairman, Samuel Heyman, who won control of GAF several years ago through a proxy fight, might be planning a repeat performance with Carbide. GAF has indicated its Carbide stake could rise to 15 percent.
Restructuring is often an effective defense, especially when antsy institutional investors who could be bought out in a proxy fight haven`t been pleased with the company`s performance.
But Stephenson, 53, whom some observers see as Anderson`s heir apparent, insisted in an interview last week that plans for the restructuring were well underway before GAF began buying into Carbide. Had Bhopal never happened, causing the price of Carbide`s stock to plunge into raider range, the restructuring probably would have been announced months earlier, he said.
”What we have is a recognition that the world has changed,” Stephenson said, citing fundamental shifts in inflation and oil prices.
That`s a sharp departure from the old Carbide. ”Before, they were taking their sweet time (restructuring), because they had the attitude that the world would wait for them to do it at their own pace,” said Garo Arman, who follows Carbide for E.F. Hutton & Co.
The nation`s third-largest chemical company, Carbide was formed in 1917 through the merger of two companies that produced carbon products used in streetlights, Eveready batteries and calcium carbide, an ingredient in industrial gases.
The company expanded into other areas, including petrochemicals, and it broadened its consumer products group, which accounts for about 20 percent of sales. Among its strengths, Carbide is the world`s leading producer of polyethylene, the key ingredient in plastic bags, and the largest domestic manufacturer of ethylene glycol, the main component of antifreeze. One of its lesser-known products, casings for such processed meats as salami, is based in Chicago In addition, Carbide`s Linde division is the largest domestic supplier of industrial gases.
But Carbide`s earnings have slid 25 percent in the last five years, partially because of divestitures but more the result of a slump in some of Carbide`s core areas, including petrochemicals and businesses that supply the steel industry. Last year, Carbide posted profits of $323 million, or $4.59 a share, on sales of $9.5 billion. The restructuring, which includes a writeoff of more than $800 million, should cause the company`s results to tailspin this year into a $200 million loss.
By 1986, however, the results should show a rebound, if the restructuring goes as planned. According to Leonard Bogner, an analyst at First Manhattan Corp., Anderson`s new, but smaller, ”machine” should be capable of producing earnings of about $7 a share by the end of next year, up from earlier projections of about $5.50. By 1987, earnings could top $9 a share. One sign of an improvement already is that the company`s gross profit margin was 1 percent higher in July than a year earlier.
Generally, analysts applaud the restructuring. Arman, who had been advising his clients to sell their Carbide stock before Bhopal, now thinks they should buy. ”They finally recognized they can`t be what they were,”
Bogner said. ”But I don`t know what Carbide wants to be in the 1990s.”
Many analysts, however, remain skeptical of Carbide`s ability to pull off the entire plan, especially to sell businesses worth about $500 million. They point to other Carbide projections, especially plans for earnings growth, that never materialized. Further, there`s not a big market for some operations that are likely candidates for the chopping block, although several small, profitable, $50 million to $175 million petrochemical units might go quickly, Bogner said.
”It`s a lot easier to lay out a game plan, and more difficult to make it happen,” said Anantha Raman, who has his own brokerage firm in New Jersey. Arman gives the company a 60-to-70-percent chance of doing everything it has set out to do. ”It`s a function of whether they will be able to implement the things they`ve set out to do,” he said.
Another factor is the blistering assessment of Carbide`s management by some members of the investment community, especially when compared with Dow Chemical Co., often regarded as one of the best-run chemical companies.
”They`re not perceived as the most crackerjack team,” Arman said.
One blunder often cited is the way the company misjudged the New York real estate market a few years ago, when it moved its headquarters and 3,000 employees from New York to Danbury. As part of the move, Carbide sold its Park Avenue building for $90 million, moving into a new building in Danbury that cost nearly $200 million. Today, the New York building is estimated to be worth about $300 million.
