Huntsman heir looks to a specialized future
Founder’s son aims to acquire small competitors to achieve stability amid a cyclical industry
“I like to think we learned from our mistakes.” Peter Huntsman, CEO, Huntsman Corp.
Jon Huntsman Sr. made his name among the titans of plastics who, in the 1970s, created a world of convenience with single-use containers like bottles and clamshell packages.
The founder of Huntsman Corp., based in The Woodlands, guided his company through a series of major acquisitions as CEO and then as board chairman once his son, Peter, became chief executive in 2000. Shortly before his death earlier this year, the elder Huntsman ceded the chairman’s role as well to his son, leaving him to oversee what has become a specialty chemicals giant with worldwide operations and a stock market value topping $7 billion.
Now, as CEO, president and chairman, the younger Huntsman will play a larger role than ever in shaping the company’s future during a period of consolidation in an increasingly globalized industry. As other major chemical companies invest in commodity plastics and chemicals during a surge in U.S. natural gas production, the younger Huntsman envisions his company becoming even more specialized by acquiring smaller competitors that would allow it to further develop its technologies and specialty products, including polyurethanes used in foams, insulation, textiles and automotive manufacturing.
Huntsman wants to create a more stable company largely insulated from the booms and busts of a cyclical industry. The goal, he said, is put an even greater emphasis on the experimentation and innovation that set his company’s higher-margin products apart in a chemicals market dominated by multinationals such as such as DowDuPont and state-owned enterprises like Saudi Arabia’s SABIC, which churn out common plastics such as polyethylene in huge volumes and low
costs.
Huntsman Corp., which began as a producer of commodity plastics such as polystyrene and polypropylene, now manufactures highly engineered polyurethanes and other petrochemicals for use in apparel, construction, transportation and manufacturing. Its shift toward specialty materials began about two decades ago with its acquisition of Imperial Chemicals Industries — a company with a strong research and development arm — and has continued as a means to shield profit margins from fluctuations in prices of raw materials derived from crude oil or natural gas.
“We’ll try to be able to manage that supply chain essentially from the barrel all the way to the store shelf,” Huntsman said. “That, for us, will continue to be a very challenging evolution.”
Key to that evolution has been shedding corporate debt, which piled up after a series of acquisitions in the 1990s and 2000s. The company years ago began to streamline its operations, selling certain commodities businesses to focus on polyurethanes and, to a lesser degree, other chemicals used to make detergents, composites and dyes.
Specialty chemicals derived from polyurethanes and other compounds command a premium because, unlike one-size-fits-all commodity chemicals, they’re formulated to customer specifications. As Huntsman puts it, their value is determined more by human creativity than the cost of raw materials.
Late last year, the company spun off its volatile business in titanium dioxide, used to make pigments, in a move that created the publicly traded Venator Materials. The sale of Venator stock and bonds generated proceeds for Huntsman to pay down about $1.2 billion in loans. Huntsman has retained a 53 percent stake in the new company, but plans to sell it off in coming years.
Now, with a much lighter balance sheet, analysts say Huntsman is well positioned to further develop its core businesses, namely polyurethanes, which accounted for more than half of its $8.7 billion in revenue last year. Global sales of polyurethane products, particularly those used to make energy-efficient insulation, are expected to increase to serve emerging middle-class markets in Asia and elsewhere as well as demand for more sustainable building materials.
“The financial cleanup culminated in them spinning off the titanium dioxide business,” said Hassan Ahmed, a chemicals analyst with Alembic Global Advisors. “Now what you have is a real pure-play polyurethanes company.”
Learn from mistakes
At 55, Huntsman said his leadership style has evolved to closely mirror that of his father, who didn’t shy away from making decisions and taking risks. The younger Huntsman said his father, a former Navy officer, learned early on not to live in fear of failure but to learn from it.
Once, when the elder Huntsman was officer of the deck on the USS Calvert, the ship was ordered to veer right and it instead went left. He thought he’d be kicked out of the Navy, but instead a superior pulled him aside and said he was certain that Huntsman would never repeat the mistake and become a better officer for it.
“That example stuck with my father,” Peter Huntsman said.
That lesson influenced Jon Huntsman’s approach to business when, in 1970, he founded his first company, Huntsman Container Co., a predecessor of today’s corporation. In 1974, it debuted the clamshell package for McDonald’s Big Macs, a design that proved a highly lucrative as drive-ins and fastfood franchises spread across the country.
He then founded Huntsman Chemical Corp. in Salt Lake City 1982, and by the end of the decade, the company had acquired five chemical plants in Texas, Ohio, New Jersey, Virginia and Illinois. The company continued to grow with acquisition after acquisition, some of which didn’t pan out as planned.
By the turn of the century, Huntsman had accumulated heavy debts and at one point neared bankruptcy before a private equity firm swooped in to invest in the distressed company. It ultimately went public in 2005 and began streamlining the business.
“We had some acquisitions that were terrible,” the younger Huntsman said. “I like to think we learned from our mistakes.”
Jon Huntsman Sr. served as board chairman when his son sought to roughly double the size of the company last year by merging it with Swiss rival Clariant, a $15 billion proposal that failed in the face of opposition from activist investors who argued the deal would erode Clariant’s value. The idea was to create one of the world’s largest specialty chemicals companies to compete with the industry’s dominant players in specialty chemicals, including BASF and DowDuPont.
‘Wake-up call’
Now, Huntsman sees potential in pursuing acquisitions of smaller, nimbler companies. He recently learned from his regional sales managers that some of the company’s fiercest competitors are smaller, more specialized companies that get products to market more quickly than top-heavy, bureaucratic multinationals.
“It was a wake-up call to me,” he said. “They’re hitting us hard, and we’ve got to act faster.”
The company has in recent months outlined a plan to invest as much as $2.2 billion in small acquisitions through 2020. In March, it acquired Demilec, a maker of spray polyurethane foam insulation, for $350 million, adding to that segment of its business.
The strategy comes as other major chemical companies work to simplify their portfolios and develop their core businesses. For example, DowDuPont, which became the nation’s largest chemical company after a merger last year, plans to split into three distinct companies next year with respective focuses on agriculture, materials science and specialty products.
“Large conglomerate companies are trying to streamline and focus down on one or two businesses,” said Jim Sheehan, a chemicals analyst with SunTrust Robinson Humphrey. “You see Huntsman aligning with that global trend.”
Huntsman’s stock has climbed considerably since announcing plans for the Venator IPO in the fall of 2016, rising from roughly $20 a share at the end of that year to nearly $30. In April, both Moody’s and S&P Global in April upgraded their outlooks for the company, though each kept their ratings one notch below investment grade.
Huntsman has worked for years to to gain an investment-grade credit rating, which has eluded the company in recent years because of its high debt levels. In a firstquarter conference call with analysts, Huntsman said the pursuit of the higher rating made him feel “a bit like Charlie Brown” when Lucy holds out the football, only to yank it away when he goes in for the kick. But analysts agreed the company is on track to achieve that goal if it generates more cash while keeping debt low.
Going forward, Huntsman anticipates further strengthening the company’s regional operations. He pointed to the company’s 2016 supplier innovation award from BMW, which recognized the company for its highperformance polyurethane seating foam. The team that designed it was based near the automaker’s Munich headquarters.
The success of that strategy, he said, depends in part on giving a certain amount of autonomy to regional managers to decide how best to serve the specific needs of their customers. That’s a lesson he learned from his father.
“You give people the opportunity to make a decision and stand behind them,” he said. “Let’s not have people so fearful that they can’t ever make a mistake.”