Chemtura sold for $2.1 billion

The sale of Philadelphia-based Chemtura last weekend shows that even the most troubled industrial firms don't have to cave in when hedge funds demand cut after cut, as long as they  are run by people who know how to run the business.

Chemtura Corp., whose scattered U.S. and foreign plants run a mix of chemical businesses, on Sunday said its board had voted to accept an acquisition offer from the German chemical maker Lanxess AG for $33.50 a share, or $2.1 billion, in cash.

The deal, subject to shareholder and regulator approval, seems to validate a band of veteran chemical company managers who defied Wall Street, took Chemtura through bankruptcy, and then listed its shares on the stock market during the financial crisis of the late 2000s.

The sharks were circling in the dark recession year of 2009 when money-losing Chemtura's board brought in new managers and asked them for a plan.

"There were people trying to steal the company," recalls Ray Dombrowski, Haverford-based turnaround specialist for New York's Alvarez & Marsal.

Or bleed it. Investment funds like Strategic Value Partners and Canyon Asset Management wanted Chemtura to borrow more to pay creditors. Hedge fund activist Nelson Peltz pushed for cost cuts.

New CEO Craig Rogerson might have seemed the man to put Chemtura out of its misery. Two years earlier he had sold Wilmington's venerable Hercules Inc. to Ashland Oil, which quickly consolidated operations.

But Rogerson built a team to outlast the crisis, moving Chemtura to his Philadelphia home base and recruiting from the region's ranks of chemical company veterans. The company brought in Dombrowski as turnaround chief.

Chemtura had been formed from the 2005 mercer of Connecticut-based Crompton Corp. with Great Lakes Chemical. The company, with initial sales of $3.5 billion, made pesticides, flame retardants, oil additives, PVC pipe, pool chemicals and more. It was weighed down with debt to European lenders, and had exhausted the patience of Lowe's and other customers.

Dombrowski told me at the time that he saw Chemtura had already cut more people than it could afford to.

Instead of borrowing and slicing more, the new managers filed for bankruptcy protection. They persuaded customer-creditors to support a plan to uphold its union contracts, and pay tens of millions into its pension plans, and tens of millions more into pollution and consumer-product claims. The firm left bankruptcy, its debts reduced.

The result: Investors who bought Chemtura when it went public in 2010 have seen their shares gain more than 14 percent a year, more than doubling their money.

Plus, the company, using proceeds from the sale of Chemtura's pesticide unit and other lines, spent $1 billion buying back its stock, pushing share values higher.

A money-loser until 2011, Chemtura has been profitable every year since, and says earnings from its remaining businesses are up 20 percent a year. That's why the sale price is the most Chemtura has been worth since it went public. Lanxess plans to boost sales. The price is a 19 percent premium to Chemtura's closing price last week, and a little more than $1 above its previous high last year. Chemtura's largest owner is activist investor Mario Gabelli's Gamco mutual fund company.

After walking away from Chemtura, Peltz went on to target bigger firms, including the DuPont Co., urging cost cuts and higher profits. That Wilmington-based chemical giant, after laying off researchers, plans to merge with Dow Chemical Co. and cut more. Peltz didn't return a call seeking comment on Chemtura.

Dombrowski, who went on to fix Patriot Coal Co., said his ex-Chemtura colleagues "are very, very happy. This is a good thing."

The lesson, for Dombrowski: When losses mount, when outside investors cry for debt and layoffs, "you need to have a little bit of patience."

And bring in hands-on bosses who "knew what they were doing."

Links: Deal announcement; Chemtura 2010 IPO and turnaround plan; Lanxess 2005 spin-off;  flame retardants; Peltz and Chemtura