Portfolio management in the chemical industry
There is clearly an ongoing portfolio management trend in the chemical industry. Recent actions or announcements include DuPont's and FMC's splits, or Chemtura, Dow, Rockwood and Ashland divesting significant parts of their portfolios. Furthermore, Ferro and a number of other chemical and materials companies are being pressured by both activist and traditionally passive investors to revisit their portfolios.
In our view, the time is right for companies to ask themselves: "Am I the highest-value owner of my portfolio businesses?" Indeed, over the last 12 months, the companies which have answered "no" to this question and taken action by shedding businesses have clearly been rewarded by the market.
We believe these portfolio actions reflect a compelling strategic rationale, especially when viewed through our "Winners' framework", which posits that:
- Investors value companies that demonstrate consistent profitable growth ("Winners")
- Winners share four characteristics: business leadership (Can your businesses set the agenda in their areas of market participation?), portfolio coherence (Are you the clear high-value owner of your portfolio businesses?), corporate scale (Are you relevant and efficient?) and the proven ability to execute (Can you deliver results?)
- Winners' portfolios tend to be valued greater than the sum of their parts – of the 12 chemical companies we identified as "Winners" between 1997 and 2013, and which have multiple businesses, 10 have market enterprise values whose sum exceeds the value of their individual businesses