Huntsman Chemical Corporation

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Huntsman Chemical Corporation

2000 Eagle Gate Tower
Salt Lake City, Utah 84111
U.S.A.
(801) 532-5200
Fax: (801) 536-1581

Private Company
Incorporated: April 1983
Employees: 1,500
Sales: $900 million
SICs: 2821 Plastics Materials Synthetic Resins

The Huntsman Chemical Corporation is the largest manufacturer of polystyrene in the United States. Although it also produces a number of other types of plastic, the company remains virtually unknown to the general public. Its customers are large corporations that have used Huntsman plastics to make such familiar objects as McDonald’s Corporation clamshell burger containers and L’eggs pantyhose egg shells. Huntsman is privately owned and operated. But where other family-owned corporations generally maintain a family member as a titular senior executive, Huntsman employs most of its founder’s family in important positions.

Huntsman was established in 1982 when Jon Meade Huntsman, a devout Mormon businessman with a declining fortune from a previous business, engineered a series of leveraged takeovers of other companies’ polystyrene operations. At the time, the polystyrene market was in a deep recession. Huntsman, however, had extensive experience with the industry and was convinced that its downward cycle had bottomed out. He learned that the Shell Oil Company was eager to sell its $67 million polystyrene plant at Belpre, Ohio. Shell wanted to abandon this and other noncore industries and was ready to sell the facility at loss. The company offered the plant to Huntsman for $42 million, but warned that he would never be able to make the deal as an individual. Having taken the advice as a challenge, Huntsman became determined to make the deal work. He pledged $500,000 in collateral against his home, and added $1.3 million from his existing businesses. He approached ARCO Oil and Gas with an offer to purchase $1.8 million worth of styrene monomer, the raw material for polystyrene, over 13 years. In return, he wanted ARCO’s support in securing his deal.

ARCO was interested in securing a long-term supply contract and offered Huntsman a $10 million loan. With his supplier on board as a partner, he later won a $29 million loan from the Union Bank of California. Huntsman then negotiated the balance, $3 million, as a deferred loan from Shell and convinced that company to secure $12 million of his loan from the Union Bank. Convinced that Huntsman was crazy, Shell executives sent the entrepreneur a bronze sculpture called The Riverboat Gambler inscribed with the words, “From your friends at Shell.” The oil company regarded its Belpre plant as a money-losing facility operating at only 60 percent of its capacity. Huntsman, however, saw a plant that could nearly double its output with no additional investment. Despite Shell’s lack of confidence in Jon Huntsman, the transaction was completed in late March of 1983. The oil company sold its Belpre plant to the Huntsman Chemical Corporation, a company formed specifically for the deal.

Huntsman, described as a deeply religious Mormon and father of nine, had a long history with polystyrene. While in high school, Huntsman struck up an acquaintance with Harold Zel-lerbach, president of Crown Zellerbach Corp. Zellerbach arranged a scholarship for Huntsman at his alma mater, Wharton. Upon graduation, Zellerbach refused to give Huntsman a job at his company. “You are the most natural entrepreneur we have ever met,” noted Zellerbach. He advised Huntsman to avoid the stifling bureaucracy of a corporation and strike out on his own. Dejected, Huntsman turned to his in-laws for work. They ran Olson Farm, a simple egg business in Los Angeles, and put Huntsman to work as a manager. Here he gained crucial experience with farmers and also noted the substantial losses incurred from inadequate packaging.

Hoping to design a better egg carton, Huntsman established contact with the polystyrene operations of the Dow Chemical Co. in 1965. Dow later purchased Olson Farm and several egg carton manufacturers, grouping them into a new company called Dolco Packaging. Huntsman was appointed Dolco’s president, and the company soon began turning out durable plastic egg cartons. The arrangement immersed Huntsman in Dow’s corporate structure, and after three years of mounting frustration with bureaucracy, Huntsman resigned his post in 1970.

With his brother Blaine, Jon Huntsman raised $300,000 and secured a $1 million loan from San Francisco-based Hambrecht & Quist. The brothers then established Huntsman Container and purchased a polystyrene plant from Monsanto. The new firm turned out polystyrene egg cartons, meat trays, eating utensils, and fast-food containers. In 1970, with the business still in its infancy, Jon Huntsman was recruited into government service. An active Republican, Huntsman took a position with the Department of Health, Education & Welfare. He was later promoted to a staff secretary for President Nixon. But in his absence, the business of Huntsman Container floundered. The small company desperately needed its founder’s energy, direction, and salesmanship.

Returning to Salt Lake City in 1973, Huntsman began a policy of personally visiting all his clients, using a small airplane. He succeeded in reviving accounts, but soon faced a more ominous problem. The oil crisis of 1973-1974 threw his suppliers into a quandary. With plenty of demand, Huntsman now found it difficult to secure supplies of styrene monomer from oil companies. He resorted to brokering petroleum compounds, often in eight-way transactions, just to ensure that the company had the necessary materials to stay in business. At one point, business became so poor that Huntsman had to skim profits from a small religious record album business he had established some years before in his garage.

Finally, in 1976, Huntsman sold his container business to Keyes Fiber. After nearly ten years of excruciating work, Huntsman was left with a tiny fortune which he considered completely out of proportion with his effort. Huntsman later told Forbes, “I determined that when I moved into business again, I would not have partners or shareholders.” But before he had that opportunity, Huntsman was dispatched by his church to Washington, D.C., where he was instructed to perform missionary work. He remained there for three years and returned to Utah in 1982. It was at this point that Huntsman negotiated his deal with Shell.

Revitalized and confident from his stint as a missionary, Huntsman was ready to get back into business. Having learned the brutal cyclicality of the chemical business, and the importance of good customer relations, he began to assemble a long list of customers. Once again, Huntsman was on the road meeting with customers and pressing them for suggestions. He learned that some needed faster delivery and others wanted altered formulations. This dedicated footwork raised demand for polystyrene so significantly that within only a few months the Belpre plant was operating at 100 percent of capacity. With profitability restored, Huntsman paid down his company’s debt.

But by 1985, as Shell had warned, the industry was racked with oversupply as other producers stepped in. Rather than ride it out, Huntsman convinced his backers to waive certain loan covenants that restricted him from making additional acquisitions. Huntsman’s strategy was to take advantage of an emerging buyer’s market for polystyrene plants. In 1986 the German chemical company Hoechst A.G. announced its intention to shut its three polystyrene plants at Chesapeake, Virginia, and Peru, Illinois. Huntsman learned that Hoechst was desperate to close the plants, so he offered to pay Hoechst $45 million for the three facilities at the end of five years. With a chance to simply wash its hands of the troubled plants, Hoechst agreed. With this latest acquisition, Huntsman had become America’s largest styrene manufacturer, using the world’s most advanced styrene technologies.

Tired of the vicious cycles in styrene, Jon Huntsman saw a need to diversify into closely related but separate markets, such as polypropylene. Having just exhausted his goodwill with bankers to make the Hoechst deal, Huntsman decided to sell a share in his company to raise the necessary cash for more acquisitions. He agreed to sell 40 percent of Huntsman Chemical to Great Lakes Chemical Corp. for $52 million, a portion of which was used to acquire a polypropylene plant at Woodbury, New Jersey from Shell.

Meanwhile, due to the terrible state of the polystyrene market, other producers exited the business, cutting production or shifting to other more profitable compounds. Within a month of the Hoechst deal, demand began to strengthen. A year later the glut had disappeared and Huntsman, with four plants in operation, was back in the black. By 1988 the company was at last out of debt. As a sign of family involvement in the company, Huntsman’s wife Karen personally vetoed her husband’s proposal to take the company public in 1988.

In 1989 Huntsman purchased the European packaging business Skelmersdale that had once been a part of the old Huntsman Container concern. Still on the hunt for a larger polypropylene operation, and with cash left over from Great Lakes Chemical, Huntsman set his sights on Aristech, a major polypropylene manufacturer that was weakened by a lawsuit for hazardous waste contamination. After a friendly bid for the company was rejected, Huntsman launched a hostile takeover of Aristech. Determined to resist this effort, Aristech’s management made its own successful bid for control, enlisting the help of Japan’s Mitsubishi Corporation.

Spurned from diversification, Huntsman’s most important product remained polystyrene. The plastic was used to make toothbrushes, packing material, television and computer casings, and, most visibly, billions of thermal clamshell containers for McDonald’s larger sandwiches. During 1990, Huntsman increased operating capacity at each of its plants. In 1991 the company established a joint venture with General Electric Company to manufacture styrene acrylonitrile at Bay St. Louis, Missouri. The company successfully managed to expand internationally; its first overseas facility was a small polystyrene plant at Stanslow, England that it acquired from Shell in May of 1984. This was followed by a second plant in Carrington, England. By 1986 Huntsman had a minority stake in Dynopor, a Singapore-based styrene venture and a plant in Mansonville, Quebec, Canada.

Huntsman also made successful inroads into the former Soviet Union, a direct result of his friendship with Occidental Petroleum founder Armand Hammer. Huntsman, a great philanthropist, also contributed substantial sums to relieve suffering after a killer earthquake devastated Soviet Armenia. For these activities, Huntsman was permitted to establish a number of joint venture plants, including a styrene plant at Gorlovka, Ukraine and another at Sheremetyevo Airport in Moscow (to make catering trays). These plants remain in operation, despite the collapse of the Soviet Union and the interruption of supplies.

In 1991 Huntsman was dealt a small but significant blow when McDonald’s abruptly curtailed use of Huntsman’s polystyrene clamshell containers. Without so much as a phone call, McDonald’s cancelled about ten percent of Huntsman’s business. Shortly afterward, the Sara Lee Corporation stopped using Huntsman polystyrene for its L’eggs containers. The changes were prompted by the Environmental Defense Fund, which portrayed polystyrene manufacturers as environmental monsters. In fact, the substitute packaging the Fund endorsed was allegedly more harmful than polystyrene.

In response, Huntsman donated several million dollars to an environmental research facility at Utah State University to study the issue. Huntsman also banded together with other polystyrene manufacturers, Dow, Mobil and Amoco, to form the National Polystyrene Recycling Corporation. The group has not yet succeeded in reopening styrene demand, and it is not likely to do so until new technologies can be developed that make the plastic biodegradable. Still, wider uses for styrene are continually being developed. These have, for the most part, compensated for the loss of a few packaging applications.

Such shocks are common in the chemicals markets and Huntsman is well-equipped to handle them. While family run, the company still depends heavily on the talents of its founder who, despite a bout with prostate cancer, remains a vital part of the organization. Continuing his company’s effort to diversify, Huntsman engineered the acquisition of the food and industrial film business of the Goodyear Tire and Rubber Company in 1992. The following year, Huntsman purchased Mobil Chemical’s polyethylene bakery bag manufacturing business. These operations blunt Huntsman’s exposure to the volatile polystyrene market and permit it to concentrate its energies on more profitable lines of business.