Following merger mania, a year of tough trading

`Further consolidation in the chemical industry.' It almost became a cliche last year, mentioned at every conference, every press briefing, every editorial. No-one expected it to happen quite so fast, though.

Between the middle of November and the end of December, a series of mega-mergers changed the face of the chemical industry, wiping away some of the best-known names of the past half-century. However, some of the proposed deals crashed spectacularly - possibly an ill omen for the coming year.

With trading conditions toughening, the UK hovering ominously close to the border between slowdown and recession, and the uncertainties of the freshly-launched euro currency, 1999 promises to be a rocky year for the process industry (see panel, left). And some industry observers are predicting further fallout from the merged giants.

The biggest, and perhaps most startling, of the mergers, joined together Rhone-Poulenc and Hoechst in a new life-sciences giant to be called Aventis. Hoechst's cerebral chairman, Jurgen Dormann, and his counterpart at R-P, Jean-Rene Fourtou, had long made no secret of their amibitions to re-focus their companies on life sciences, and had taken steps to demerge their industrial chemicals operations - as Rhodia in R-P's case, and for Hoechst, Clariant (the specialities joint-venture with the former Sandoz specialities businesses), Messer, and other operations. The move was three years in the making, according to Fourtou.

Aventis - the name is borrowed from Hoechst's R&D spin-off, which will be renamed - will be based in Strasbourg, but the partners hope it will be incorporated as a European company. The board of the new company will be a mixture of the French and German executives, but the firms are confident that there will not be any culture-clashes.

One of Hoechst's spin-offs, the speciality and industrial chemicals arm Clariant, was involved in an abortive merger with Ciba Specialty Chemicals. The Swiss company hoped to create a company that would dominate the speciality chemicals market.

The plan would have created a company with annual sales topping SRf18billion (some £8.3billion), in high-growth markets, and with a SFr600million (£275million) R&D budget. Despite its convoluted structure with legacies from past mergers, the boards were confident that the cost-savings and potential growth justified the merger.

It turned out not to be that simple. According to Ciba, due diligence investigations revealed `commercial, financial and regulatory risks and constraints which would affect the future merged company.' Said chairman Rolf Meyer: `The risks were greater than we first thought and the advantages of the merger were thus not as great as we first thought.'

Problems of another kind have afflicted ICI's attempted deals. The company, trying to reduce its debts, tried towards the end of last year to force through the sales of some of its commodity chemicals businesses. Tioxide, the titanium dioxide business, was to sell its businesses outside the US to DuPont, while the US TiO2 businesses were to go to NL Industries. Meanwhile, DuPont was also to have taken over the company's purified terephthalic acid (PTA) business in Pakistan.

The Tioxide deal had been on the cards for some time, but the US Federal Trade Commission ruled that DuPont would have to sell a TiO2 plant in Grimsby to NL Industries. These terms were deemed `unacceptable to all parties' and the deal was called off. DuPont then also pulled out of the PTA deal. ICI is currently considering the situation: it has not altered its strategy of disposals, it says, and a trade sale of Tioxide, rather than a flotation, remains the most likely option.