Bloomberg News ran an article last week suggesting that Honeywell was “considering exiting its business that makes chemicals for manufacturing nylon,” which would include its ammonia plant at Hopewell, VA.
Honeywell is working with financial advisers on options for the caprolactam unit, which could be spun off or sold, said the people, who asked not to be identified because the plans aren’t public. The business earmarked for divestment generates an estimated $150 million to $200 million in profit, according to one of the people. It could fetch about $1 billion, a separate person said.
The Hopewell plant has been in operation since 1928 and its ammonia capacity is 530,000 metric tons per year. In the industrial market, it is “the world’s largest caprolactam producer,” but the plant also serves the fertilizer market, producing significant amounts of ammonium sulfate, as a byproduct, for export.
Although the plant has operated under different company names over the last 90-odd years, it has never actually been sold. The original plant was built by the Atmospheric Nitrogen Company, which was a subsidiary of the Solvay Process Company, one of the five original allies in the Allied Chemical & Dye Corporation established in 1920. Allied became AlliedSignal in 1985, and AlliedSignal became Honeywell International in 1999.
Obviously Honeywell hasn’t announced anything about this possible divestiture, and the only hint in its latest 10-K is a generic statement:
We continuously assess the relative strength of each business in our portfolio as to strategic fit, market position, profit and cash flow contribution … We also identify businesses that do not fit into our long-term strategic plan based on their market position, relative profitability or growth potential. These businesses are considered for potential divestiture, restructuring or other repositioning actions subject to regulatory constraints.
Bloomberg suggests that Honeywell is considering its options because “increased Chinese production has pressured producers’ margins.”
The sale of the Hopewell plant would mark the end of an era – however, given the site’s awful environmental track record, this might not be a bad thing. (Also from Honeywell’s 10-K: “we expect to spend approximately $250 million in 2016 for remedial response and voluntary clean-up costs.”)
Also last week, but speculating in the opposite direction, a Financial Times article said that mergers and acquisitions in the fertilizer industry were not happening because of the decline in fertilizer prices. The FT illustrated the price decline by pointing out that farmers in Illinois were spending less on fertilizer than on seeds for the first time in 14 years.
“Fertiliser prices … have fallen sharply over the past year … [and] hit profitability at crop nutrient groups, sapping their ability to look at mergers or acquisitions …
Dealmaking in the $175bn fertiliser sector has remained stagnant … the only deal to be agreed was the $8bn acquisition of Dutch group OCI’s European and US assets by CF Industries, the largest US producer of nitrogen-based fertiliser …
Now, production capacity and supplies are increasing on investment decisions taken four to five years ago, when prices were high. The industry is faced with overcapacity issues and “rationalisation and consolidation activities have emerged in key producing countries.”
The FT goes on to discuss the unconsummated PotashCorp-K+S merger, but omits to mention the merger between CVR Partners and Rentech Nitrogen, which closed this month.