It’s good news that Bayer has announced the spinoff of its plastics business, BayerMaterialScience, within the next two years.
Like GE, Monsanto, and other major companies, Bayer lost its appetite for the relatively slow growth and weaker-than-average margin of the plastics business despite the company’s enormous legacy in the business, including the development of the polycarbonate and polyurethane businesses.
The plastics business has been starved for capital as the corporate board in Leverkusen favored investment in the more profitable life sciences industry, the flavor of the day for the global chemical industry.
The writing was on the wall when MaterialScience was set up as a separate business and other plastics and chemical assets were spun off as Lanxess in 2004. According to Anya Litvak and Len Boselovic of the Pittsburgh Post-Gazette, Lanxess shares have outperformed the S&P 500 since the spinoff, and have generated yearly returns of almost 13 percent.
The sale of GE Plastics (an outfit very much like BMS) was crushing to many of its employees in 2007. SABIC, which renamed the unit SABIC Innovative Plastics, has invested significantly in the company’s key brands and has expanded its product portfolio to include high-end polyolefin compounds to provide its sales force with a bigger and more powerful portfolio when selling to automotive and other major markets.
In my opinion, Bayer MaterialScience has lost ground in the marketing of polycarbonate for automotive glazing while the former GE Plastics unit is pushing ahead quickly. Volkswagen, for example, is using SABIC polycarbonate glazing in its new XL1 diesel plug-in hybrid.
Sales of GE Plastics were $6.6 billion in 2006 and profits were just $674 million. SABIC does not break out financial results for Innovative Plastics, but I would expect that results now are significantly stronger.
It will be very strange to see the Bayer name missing from the next K Fair in Düsseldorf Germany. It seems like BASF and Bayer (and at one time Hoechst) are pillars of success and innovation that are part of the soul of the huge Hall 6, each anchoring different ends of the building. Lanxess carved out a chunk of the Bayer space at K 2007, and at K 2016 there will be a new name with considerable new pride in the corner of the hall.