December 2008

Chemical combine

DeLyle Bloomquist, president and CEO of General Chemical, shares his company's plans for the future as a part of the Tata group

DeLyle BloomquistGeneral Chemical Industrial Products, US, is one of the top five global producers of soda ash, with access to natural deposits of the mineral at the Green River basin in Wyoming, USA. Tata Chemicals acquired General Chemical (GC) in January 2008, thereby becoming the world's second largest producer of soda ash. In this interview, DeLyle Bloomquist, president and CEO of GC, talks to Sujata Agrawal about his company's experience of becoming a part of the Tata group and its plans for the future.

General Chemical has been part of the Tata family for a few months now. What has the experience been like, particularly on the HR front? Have expectations from your end been met?
Our expectations were primarily driven by our own experiences of acquisitions. In November 2007 we had acquired a company, Zemex Minerals, a leading producer of mica and attapulgite clay. We took over the management of the business, got the businesses on our financial reporting and payroll systems, terminated some corporate employees and closed down two offices — all within 60 days. That’s what American businesses do in acquisitions.

And that was what we expected would happen when we were acquired by Tata Chemicals; my executive managers and I were thinking about getting our resumes updated. But what has happened was completely different.

When we talked to Homi [Homi Kushrokhan, MD, Tata Chemicals] and Mukundan [R Mukandan, COO, chemicals division, Tata Chemicals], they communicated to us that the reason for acquiring General Chemical was not only for its hard assets but also for its management team. They explained that the Tata strategy is to have the best management team in countries that they are doing business in; they don’t Indianise the companies. And that was a different strategy for us; it was beyond the expectations that we had set for ourselves.

Homi and Mukandan met our employees in the New Jersey corporate office and at the plant in Wyoming and explained that Tata is a wonderfully warm family with a strong interest in the community and welfare of employees. But there was a healthy amount of scepticism and expectations that certain positions would go. As that hasn’t happened, people now know that Tatas walk the talk; they are now focused on their jobs and on the company.

How has the integration with Tata Chemicals progressed?general_chemicals01.jpg
Our culture has been to focus on the speed of execution. We don’t care how many dishes we break during the process; the damage is cleaned up later. With Tata, it has been a much more measured and thoughtful process. They want to be smart. Work and ethics is a higher priority than timetables and timelines. So at times we were kind of 'biting at the bit' and TCL were trying to pull us back, explaining to us that they wanted to make sure that things were done in a responsible manner.

Our first integration meeting was held a month after the acquisition was closed, during which we identified needs and discussed ideas. We then had a 50-day period in which we focused on the top 20 projects that came out of that meeting, and tried to implement as much as we could within the time frame. Now we are focusing on the rest. There is a lot of work to be done, a lot of value to be had in terms of the integration activities. There are, I think, differences in our business cultures and an exchange of people will help both sides understand each other better.

What have been the advantages of having a unified entity?
There are a number of very obvious advantages that come to mind. The first is the global play. Tata Chemicals has businesses in India, the UK (Brunner Mond), Kenya (Magadi Soda) and now in the US (General Chemical). We’re now required to think about the soda ash business on a global scale.

General Chemical has been global for decades — we ship 40 per cent of our products worldwide. In Europe, for example, we have been selling soda ash as one of Brunner Mond’s main competitors. Obviously we will not be doing that anymore. One of the tasks, as part of the integration process, was to take care of that. The key is to coordinate the activities of these operations to maximize the potential.

The second advantage is the reputation. Tata’s reputation is sterling even within the soda ash industry. We got stronger because of our association with Tata and the other entities also got stronger because of their association with General Chemical. I think the whole just got a lot stronger.

Third, GC’s access to capital and people is better now. We were run by hedge funds and financial players for a decade, so we were always on a shoe-string budget. We will now be able to go after opportunities we see as very beneficial. Our workforce has always been very lean; having access to the engineering group of Tata and to the depth of management in Brunner Mond and Magadi will be very good for us.

The geographical diversification in terms of the markets we serve is a less obvious advantage. GC was always fairly diversified because of its global reach but when you put the whole together — the exposure to India, to Africa — that serves us very well; it should reduce the profit volatility of the overall organisation. The markets aren’t perfectly correlated — when one market goes up, another maybe going down. Being able to touch all markets should give us a less volatile profit picture, which the investor should value highly.

Finally we are looking at expanding the plant at Green River. One of the first things that Tata talked about was how business can be expanded and we should be putting in a plan for that next year.

The chemicals industry, especially in the West, has had to face some heat on the environment. Could you tell us something about General Chemical’s efforts in this area?
The US, Europe, and most of the developed world (the G7 countries) are a very difficult environment to work in because of the many rules and regulations. Therefore our top priority at GC is to operate within the permissible levels established by the state of Wyoming and the US, and abide by the rules and regulations of the different regulatory authorities.

GC has an exemplary record in meeting and exceeding expectations. We have been reducing our greenhouse gas emissions since 2000, while increasing production. We are constantly trying to find ways to improve our energy efficiency. The safety performance of our facility in Wyoming is at an all-time best level.

We are trying to proactively minimize our footprint and impact on the environment. A good example of this would be our decahydrate crystallizer project that we completed in October 2007. This project takes an effluent that we were throwing away and processes it through a crystallizer to recover soda ash. The project has helped us become more profitable and reduced our environmental footprint at the same time. We have reduced the outflow from our facility by about 90 per cent, and the recovered soda ash is actually of a higher quality and lower on cost than the soda ash made from trona.

What has been the effect on business of the rising price of commodities?
There are two aspects to this phenomenon: the impact on our customers and the impact on us. For synthetic soda ash producers (BM included), their cost structure has gone through the roof because of the cost increase of oil and coal (energy makes up 80 per cent of the cost for synthetic soda ash producers).

Fortunately we have abundant coal reserves in Wyoming, and we are backward integrated all the way back to the basic raw material (trona). As a result, our cost structure has only gone up a little bit, thus, margins have expanded and profitability is booming.

For our customers, the demand for soda ash has been high — just like it has for aluminum, coal, oil — so the price for these commodities has increased. In fact there is more demand for soda ash than producers are able to meet. Since we cannot increase capacity to satisfy the demand, it’s pushed prices twofold in the last 24 months.

What are the new growth avenues that the company is pursuing? Will soda ash remain the main business?
Well, we are going in a completely different direction from what we were hoping to do before the acquisition by Tata, which was becoming a minerals-focused company. This is why we had acquired mining based companies. GC is more a mining and distribution company than a chemical company. We mine rock out of the ground, purify it (there is no chemical process), put it in a rail cart and ship it. And we do all that very well. However, now that we are part of Tata Chemicals, we have to be soda ash centric again.

So what does that entail? Soda ash is one of those basic fundamental things that people have to consume every day. It’s used in toothpaste, washing powder, glass bottles, chewing gum… An average person in North America consumes almost 45 pounds of soda ash every year. And as the developing world urbanises, they will consume products that require soda ash; so the organic growth in developing economies for soda ash will grow significantly.

Fortunately Green River is the lowest cost producer in the world for soda ash and this will allow us to participate in that growth. So the business will have a nice long-term growth curve going forward, and we will be able to make good money on that.

There are also other opportunities around soda ash — upstream products such as soda bicarbonate, glass and detergents. But we have to be very careful not to compete against our large customers who buy our soda ash to make those very same products.

Tatas are already in the bicarbonate business in India and through Brunner Mond in the UK. But we could look at doing something here as well. In fact one of our partners in North America is a company called Church and Dwight, the makers of Arm & Hammer products (which have our soda ash in them). They don’t sell a lot globally so there is an opportunity to expand with them in other parts of the world.

general_chemicals02.jpgApart from expansion in products, we should look at building soda ash capacity in parts of the world where we believe that demand for soda ash is going to grow in the next 15 to 20 years. India is a good example — we expect the demand for soda ash to be very strong there for a long time — and the Tata group is already well-positioned there. China is another opportunity — 50 per cent of the organic growth in the next 20 years for soda ash globally is going to be in China — and Tata does not have a presence there. I believe a soda ash business in Brazil may be another opportunity.

There are obviously competitive challenges in this. There is the race to see who gets there first and then there is the local competition. The important thing is to find partners in these countries who are well connected politically and commercially, who are ethical; folks with whom you can do business with in the long-term.