Tredegar Corporation

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Tredegar Corporation

1100 Boulders Parkway
Richmond, Virginia 23225
U.S.A.
Telephone: (804) 330-1000
Fax: (804) 330-1177
Web site: http://www.tredegar.com

Public Company
Incorporated: 1988 as Tredegar Industries Inc.
Employees: 3,200
Sales: $767.6 million (2001)
Stock Exchanges: New York
Ticker Symbol: TG
NAIC: 322221 Coated and Laminated Packaging Paper and Plastics Film Manufacturing; 331316 Aluminum Extruded Product Manufacturing

Tredegar Corporation, based in Richmond, Virginia, is primarily involved, through subsidiaries, in two unrelated businesses: plastic films and aluminum extrusions. The company’s film products are used as liners and backsheets in diapers, feminine-hygiene products, surgical masks, industrial packaging, permeable groundcovers, and cheesecloth. Procter & Gamble is responsible for some 30 percent of all film product revenues. Tredegar’s Aluminum businesses rely on the extrusion process, in which large sections of aluminum are forced through forms to make various shapes. Aluminum extrusions are used in such products as curtain walls, window components, tub and shower doors, ladders, running boards, boat windshields, and furniture. The Tredegar Investments subsidiary is a venture capital operation that targets technology start-up companies. Recently Tredegar has decided to cease activities in the biotech arena, where subsidiaries Therics and Molecumetics were involved in the development of bone replacement products, soft-tissue products, drug delivery products, and chemistry-based drug discovery technology. Chairman John D. Got-twald and his family own nearly a third of Tredegar.

Lineage Dating to 19th-century Paper Manufacturer

Tredegar was spun off in 1989 from Ethyl Corporation, which 30 years earlier had been acquired by Albemarle Paper Manufacturing Company, owned by the Gottwald family. Albemarle was established in Richmond in 1887 by area businessmen, taking advantage of the James River to power a paper mill that produced blotter and kraft paper. It was in 1918 that Floyd Dewey Gottwald, Sr., a native of Richmond, left his job as an assistant paymaster for the Richmond, Fredericksburg and Potomac Railways to take a position at Albemarle. Over the next 20 years he worked his way up in the organization and in 1941 became president. Two years later his son, Floyd Got-twald, Jr., joined the company, which was in the process of becoming 70 percent owned by the Gottwald family. Ablemarle’s primary product was blotting paper, but with the introduction of the ballpoint pen in 1945, the popularity of the fountain pen began to fade and with it the market for blotting paper. Albemarle also felt pressure on the kraft paper segment during the 1950s when dry cleaners began using polyethylene bags for garments instead of the paper bags that Albemarle supplied. It was clear that the Gottwalds were tied to declining products and that drastic measures were in order.

In 1962 the elder Gottwald learned that General Motors and Standard Oil were interested in selling Ethyl Corporation, which the two companies had formed in 1924 to manufacture tetra ethyl, a lead additive that eliminated knocking in car engines. Because of its patent on the substance, Ethyl established a strong foothold in the gasoline additive market. When the patent expired, the company was able to maintain an edge in the market through the 1950s. Large chemical companies such as Du Pont or Dow Chemical might have been interested in acquiring Ethyl once its corporate parents decided to put the business on the block but, because of strict enforcement of antitrust laws at the time, both Dow and Du Pont shied away, leaving an opening for Gottwald, who recognized a chance to manufacture polyethylene bags through Ethyl. Turning to a variety of sources, including Prudential and three other insurance companies, a number of investment houses, and Chase Manhattan Bank, he was able to cobble together $200 million. The investors received notes in exchange for their cash, and in this way tiny Albemarle was able to buy Ethyl in an early example of the leveraged buyout, prompting a memorable headline in the Wall Street Journal: “Jonah Swallows the Whale.” The company was then restructured so that Albemarle became a subsidiary of Ethyl, and the blotter paper business was subsequently sold to help pare down the considerable debt that Gottwald had taken on. In addition, Ethyl’s headquarters was moved to Richmond.

Ethyl’s 1960s Diversification Efforts Leading to Tredegar Product Lines

Although most of Ethyl’s revenues would continue to come from the sale of tetra ethyl, the company was also diversifying into product lines that would one day become part of Tredegar. In 1963 Ethyl acquired VisQueen, which made polyethylene film for food packaging. In 1966 the company bought William Bonnel Company, makers of shaped aluminum. After Floyd Gottwald, Jr., took over for his father in 1968, diversification took on even greater importance, as growing environmental concerns led to the elimination of leaded gasoline. Scientists attempting to learn more about the formation of the Earth traced lead isotopes in the Arctic and Pacific and inadvertently discovered that airborne lead was actually poisoning people, especially in cities, where subsequent research showed that the urban population had 50 percent more lead in their blood than their counterparts in rural areas. The cause, according to numerous studies, was leaded gasoline, which prompted Congressional action. Ethyl contested these findings and fought back with a public relations campaign that claimed eliminating lead would exacerbate the situation because inefficient knocking engines would end up releasing even more noxious fumes into the atmosphere. The company’s arguments fell on deaf ears, however, as Congress eventually passed the Clean Air Act, which banned lead in gasoline. Ethyl, at the very least, was able to buy time. Further, because the ban was then gradually phased in, the company took steps to lessen its dependence on the tetra ethyl business, which continued on in European markets, focusing instead on chemicals, plastics, and aluminum. The development of disposable diapers was of particular help, since Ethyl provided the plastic lining for the Procter & Gamble Pampers line. In 1981 Ethyl became involved in the insurance business when it acquired First Colony Life Insurance. Along the way the company also picked up an assortment of coal mines and gas and oil properties.

Because of strong management from the Gottwald family, which was now reinforced by a third generation entering the ranks, Ethyl, despite its disparate businesses, was a successful enterprise. In late 1988, however, the company announced that it was consolidating its plastics, aluminum, and energy groups into a new subsidiary, Tredegar Industries Inc., all of the assets of which management had considered selling off. Ethyl then spun off this hodgepodge assortment of assets to shareholders as an independent, publicly traded business, its shares distributed in July 1989. The Tredegar name was an allusion to the Civil War-era Tredegar Iron Works, a famous Richmond facility that supplied cannon and other armaments to the South. Floyd Gottwald’s son, John D. Gottwald, who was only in his early 30s, was named president and CEO. As an undergraduate college student he studied Geology at Washington and Lee University before earning a master’s in business administration from the University of Richmond. His obvious task at Tredegar was to weed out the company’s weak businesses and strengthen the ones with the greatest long-term potential.

Adjusting its business mix, Tredegar struggled at first, hindered by the effects of a poor economy, which especially impacted the company’s aluminum extrusion business. With housing starts down, the demand for many of Tredegar’s products slumped. But it was due primarily to the unloading of unprofitable assets that the company saw its sales decline from $637 million in 1989 to $547 million in 1990. In 1990 Tredegar sold its U.S. oil and gas properties, as well as an automotive plastics operation and a division that made windows and doors. Because it was unable to sell Capitol Products, which also manufactured windows and doors in addition to other consumer goods, Tredegar opted to simply close down the business. At the same time, management was also searching out new opportunities. It formed a venture capital firm, Tredegar Investments, in 1990 to invest in communications, life sciences, and information technology companies.

Although revenues fell to $474 million in 1991, Tredegar stopped losing money and posted a profit on the year. Nonetheless, management continued to buy and sell assets. In 1991 Tredegar acquired Swing-Shift Burdi, a forklift parts maker, then later in the year sold a beverage closure business. Tredegar in 1992 moved into the computer software business, buying APPX Software, a Richmond developer of business applications software. Tredegar also became involved in the pharmaceutical industry through its Seattle Molecumetics subsidiary, a biotech drug and vaccine discovery and development business.

Company Perspectives:

“We have set our sights on becoming a world-class company that consistently generates substantial growth in profits and economic value.”

—Norman A. Scher, president and CEO

Divesting Energy Interests: 1994

Tredegar decided to divest its energy businesses in 1994. The company’s remaining oil and gas properties, located in western Canada, were sold for $8 million. Elk Horn, with mineral rights in eastern Kentucky coal, was sold to Pen Holdings, Inc. for an aggregate consideration of $72 million. A coal trading business, Elk Horn Coal Sales Corporation, was sold separately. Although Elk Horn contributed $30 million in annual revenues, Gottwald made it clear at an annual meeting that “Energy is not where Tredegar wants to invest.” Instead, he preferred to channel the cash realized from the Elk Horn sale into a stock buyback effort or to make strategic acquisitions in the company’s core plastics and metals businesses. They showed such improvement in 1995 that the company posted net income of $24.1 million, or $1.80 per share. Moreover, in September of that year the board of directors declared a three for two stock split. Despite the overall success of the plastics and aluminum products segments, management remained diligent about fine tuning Tredegar’s assets. The company began plans to sell off Molded Products and Brudi, and in March 1996 Tredegar sold the former to Precise Technology for $57.5 million. Later in the year the company sold off Brudi for $18.1 million. To bolster plastics and aluminum products, Tredegar made a number of other moves. In 1997 it acquired an aluminum extrusion and fabrication plant located in El Campo, Texas, from Reynolds Metals Company. On the film side, Tredegar also announced in 1997 that it planned to open a manufacturing facility in China to supply permeable film for use in diapers, feminine pads, and other disposable personal products to China and throughout Asia where such items were little used and offered great potential for future growth. Until the plant came on line, Tredegar operated out of a Procter & Gamble factory located in Guangzhou, China. Tredegar also announced in 1997 that it would build a plant in Eastern Europe (eventually built in Hungary) in order to supply embossed and permeable films for disposable personal products to supply emerging markets on that continent. Since 1989 the company’s Dutch plant had been able to supply European markets but was now unable to meet the growing demand for Tredegar products in Europe and Russia, markets similar to China and Asia where the sale of disposable personal products held great promise for the future. Moreover, the addition of facilities in China and Hungary contributed to the company’s efforts at globalization, which included existing manufacturing facilities in Brazil and Argentina. In 1998 Tredegar expanded its aluminum operations to Canada, acquiring the assets of Exal Aluminum Inc. and its two aluminum extrusion plants with annual sales of more than $90 million. Tredegar also expanded its presence in biotechnology with the 1999 acquisition of Therics, a Princeton, New Jersey, company involved in the development of bone and tissue replacement.

In 1999 Tredegar’s film products business struggled while the aluminum extrusions business continued to flourish. As a result, revenues for the year topped $820 million, a significant increase over 1998’s $700 million, but net earnings fell from $69.8 million in 1998 to $52.65 million in 1999. Tredegar took steps in 2000 to revitalize the film products business by acquiring ADMA and Promea, both operating in Italy, a move that also furthered its globalization strategy. ADMA manufactured films for personal hygiene products, while Promea manufactured the equipment used in making films and laminates. Although the two companies’ combined annual sales totaled less than $10 million, they added valuable sales contacts, not only in Europe but in China and the Middle East. Also in 2000 Tredegar focused on its technology group, which was comprised of Tredegar Investments and the Therics and Molecumetics bio-tech operations. Management considered spinning off the group as an independent company, but in the end decided to make a greater financial commitment to Therics and Molecumetics. In addition to seeking external financing for both subsidiaries, Tredegar planned to provide some $60 million in funding for Therics from Tredegar Investments, which would no longer make new venture investments although it planned continued support for its portfolio companies.

With a weakening economy in 2001, Tredegar was forced to make adjustments. Demand in both plastics and aluminum were down, forcing the closure of two manufacturing facilities, an aluminum extrusion plant in El Campo, Texas; and a Tacoma, Washington, plant that made film for disposable diapers. Tredegar’s venture capital investments in the hard-hit technology market also suffered. In September 2001 Tredegar made a managerial change, as Gottwald ascended to the chairmanship, a new position in the corporation. Until that time he served as part of a three-member executive committee. He now turned over day-to-day operations to Norman A. Scher, who took over as president and chief executive officer. Scher had previously served as chief financial officer. Several months later at Tredegar’s annual meeting he announced that the company had decided to drop out of biotechnology and put Molecumetics and Therics up for sale. He maintained that the businesses had a better chance of reaching their potential as part of a larger biotech company that was able to provide the necessary resources. Tredegar would now focus all of its attention on its two remaining businesses, film and aluminum, which were likely to regain their strength as the economy improved.

Principal Subsidiaries

The William L. Bonnell Company, Inc.; Tredegar Film Products Corporation; Tredegar Investments Inc.

Principal Competitors

Alean Inc.; BP p.l.c; Mitsubishi Chemical Corporation; Mitsui Chemicals, Inc.; AEP Industries Inc.; Pliant Corporation; Minnesota Mining & Manufacturing Company; Alcoa; Griffon Corporation; Kaiser Aluminum & Chemical Corporation.

Key Dates:

1962:: Gottwald family-owned paper company acquires Ethyl Corporation.
1988:: Tredegar Industries subsidiary is formed to consolidate Ethyl’s plastics, aluminum, and energy assets.
1989:: Tredegar is spun off as independent company.
1990:: U.S. oil and gas interests are sold off.
1992:: Tredegar becomes involved in biotechnology through Molecumetics.
1994:: Last of energy assets is sold.
2001:: Norman Scher replaces John Gottwald as president and CEO.
2002:: Tredegar decides to exit biotechnology.