Glass Industry

Solutia is Doing Well after Three Years of Bankruptcy

Solutia Inc. is doing well and marshalling resources, filling vacant wings of its headquarters in Town and Country with energized executives and new hires.

Executives in the company's Flexsys rubber chemical business and CPFilms window films unit are unpacking boxes and settling in, fresh from their former home bases in Brussels, Belgium, and Martinsville, Va., respectively. Solutia last week reported first-half net income of $48 million on sales of $1.6 billion, up from $8 million net income and $1.4 billion in sales in the year-ago period.

Chief Executive Jeffry Quinn is proud of the growth, but says it is a blessing and a curse in the company's more than three-year-old bankruptcy reorganization.

"The businesses have improved. We've improved profitability," he said. "At some points, that has encouraged stakeholders to continue to elbow to try to get a bigger share of the pie, as opposed to fueling a great sense of urgency to get the company out of bankruptcy" as would be the case if the company were losing value and money.

"Surprisingly, perhaps, that has been a part of why we're still in bankruptcy," Quinn said. He predicted that Solutia will emerge from bankruptcy this fall.

The company certainly is more valuable today than when it filed for Chapter 11 reorganization protection in December 2003.

Solutia's consultants said last month that its enterprise value — what the market believes the company's ongoing operations are worth — will be about $2.8 billion if it emerges soon. That's about three times the enterprise value those same consultants placed on Solutia in February 2006, according to court documents.

Some constituents say even that latest figure is too low. A committee of pre-bankruptcy shareholders said in filings that it "vehemently disputes" the valuation as "significantly lower" than the market will bear. It hopes to convince the Bankruptcy Court that Solutia has more than enough money and equity to go around, including a distribution to shareholders who stand to get little or nothing from the reorganized company.

Solutia's current reorganization plan, which may be amended in response to arguments from the shareholders and other constituents, calls for unsecured creditors to recover 85.3 cents on the dollar of their claims, up from 52 cents in the 2006 plan.

"Creditor recoveries … will be more significant than most people thought they would be at the start of this process," Quinn said.

So, what's behind the growth?

During its reorganization, Solutia has shed unprofitable units and acquired others that are doing well. It cut production costs, while successfully raising prices to offset record-high energy and raw material rates. And the company became more global, increasing its focus on rapidly expanding Asian markets.

Perhaps most significantly, Solutia stopped paying for "legacy liabilities," such as retiree insurance and environmental cleanup costs, that it inherited from its former parent, the old Monsanto Co. Solutia was created in 1997 from that company's chemical division.

"Our mantra here is of (changing) a portfolio that at one time was just what was left when Monsanto decided to exit the chemical business," Quinn said. "We're investing in good businesses to really drive them to a high level of performance."

Two recent beneficiaries of that investment are Flexsys and CPFilms. Each is adding jobs and becoming a more closely integrated part of Solutia's core, in part by moving their headquarters to Town and Country.

Flexsys, with $600 million in annual sales, had been a joint venture between Solutia and Akzo Nobel NV until February, when Solutia bought out its partner for $212.5 million. Jim Voss, formerly head of Solutia's business operations, became president of Flexsys.

As sole owner, Solutia brings to Flexsys a new agility and ability to be aggressive in the marketplace, Voss said. Gone are the days when its two parents had to deliberate over every move.

"Jeff (Quinn) just doesn't run Solutia that way. … He will allow the business to really shine," Voss said.

One example is Flexsys' acquisition in July of the rubber chemicals business of Chemetall GmbH: Flexsys as a joint venture had been mulling the deal for more than a year, but it took Solutia to pull the trigger, Voss said.

As for what it adds back, Flexsys is the world's leading supplier of rubber chemicals to the tire industry and has global experience to share with Solutia's other units. Its on-the-ground contacts in China and other significant markets will be useful to the company's window films and nylon operations.

Kent Davies, who heads Solutia's CPFilms business, said the mere act of wholly acquiring Flexsys made employees throughout the enterprise feel good.

"It's a nice example of business-building, when that's what we're turning to" as the bankruptcy reorganization draws to a close, he said. "It's a nice fit."

CPFilms, which sells window films that add desirable properties to windows in buildings and cars, is a new animal in Solutia's business menagerie. It is focused on consumers, rather than chemical industry partners, and must sell them on the concept of buying films to make glass shatterproof and able to filter the sun's harmful UV rays, or block wireless eavesdropping.

Window films cover just 1 percent of glass in the world, Davies said. He sees that as both a challenge and an opportunity.

"At least today, most consumers don't get out of bed thinking, 'Window film, how can I get more window film?'" he said. But they are waking up concerned about security and the negative impact of the sun's rays on their health and home cooling bills.

If Davies succeeds in bringing home the benefits of CPFilms' products, "We think we can get this business up to its full potential," he said. The unit's goals are "ambitious, but achievable."

Quinn said he welcomes the two units to Solutia's headquarters, where they join a nylon fiber and intermediate business; Saflex, which sells interlayers used in laminated auto and architectural glass; and specialty products.

"We're not a holding company. I refer to us as a single, integrating company with multiple business lines," Quinn said.

Solutia has abandoned a plan to sell off assets piecemeal, which had surfaced as an alternative during its reorganization.

"We have determined, and our creditors have determined, the right path going forward is to emerge as a stand-alone company with the business lines we have right now," Quinn said. "We have made significant progress toward that goal."

Source: STLtoday