Catalyst

Sensient Technologies singled out buy-side equity analyst John McMillin–who covers materials, food, and agribusiness for Prudential Equity—saying in a press release issued this morning that an incorrect statement related to historical calculations of Sensient’s stock price was “an attempt to minimize the company’s recent success.”

“McMillin…. incorrectly stated that Sensient’s common stock reached a price of $30 per share in April 1997. In fact, when properly adjusted for splits, the Company’s stock price during April 1997 never exceeded $17.69. Furthermore, at no time prior to April 20, 2007 has the price of Sensient’s stock, when properly adjusted for splits, ever exceeded $27.75 until this past Friday, when the stock reached an intra-day high of $30.34.
Sensient believes Mr. McMillin made the incorrect statement about Sensient’s stock price in an attempt to minimize the Company’s recent success.”

That old saying about never picking a fight with people who buy ink by the barrel comes to mind, but with a slight twist for the digital era. Never pick a fight with someone who can blast out .pdf’s by the dozens in a matter of seconds.

Prudential responded within a couple of hours, acknowledging the error but also taking the opportunity to again re-emphasize a few points.
The Prudential report headline sums it all up: “We apologize for our mistake, but it was not done intentionally—bottom line the stock has done nothing for 9 years and we stated 10 years.”
“In our 20 plus years following food stocks, we have made a mistake or two in our numbers calculations, but never have we seen a company issue a press release on it,” McMillin said in a note to Prudential clients.

“Using Yahoo finance and failing to look at the last number, which adjusts for stock splits, we stated that Sensient (SXT) hit $30 in April 1997, which was wrong. We are sorry for the mistake, but strongly deny the company’s claim in a press release that it was done intentionally.
Correct numbers are that SXT is up 67.8% over the last 10 years versus the market’s 93.7% gain. We have written on SXT since December 1999 and wish the company had at least called us before issuing its press release. A year earlier on December 31, 1998 the stock hit $27.43. What we remember more than everything is the stock doing nothing since we began studying it, which was about a year before we started writing on the stock. Bottom line, SXT has not really moved in 9 years and while our report on Friday suggested 10 years.”

Cargill’s efforts to develop a chemical business based on renewable resources such as corn and soybeans get page 1 treatment in today’s U.S. edition of the Wall Street Journal. (A Bio-Plastics Revival
Makes Gains at Cargill; WSJ.com is subscription required).

“High oil prices have bolstered the economic rationale for making plastics, foam and lubricants from plants. With a growing focus on bio-products, consumers could soon see ‘vegetarian’ car seats, sofas and surfboards,” according to the WSJ.

Although most petroleum-based chemicals remain substantially cheaper, high oil prices have bolstered the economic rationale for making plastics, foam and lubricants from plants grown in the Midwest.

The article highlights a sofa made with soy-based foam.

Hickory Springs Manufacturing Co. is replacing some of the petrochemicals it uses to manufacture polyurethane foam with a Cargill soybean compound. The Hickory, N.C., foam maker turned to Cargill after its chemicals suppliers boosted prices about 50% in the wake of Hurricane Katrina. “We now realize that in everyday life we have to not depend on petrochemicals,” says Bobby W. Bush, a Hickory Springs vice president. A sofa stuffed with soy-foam Retailer Crate & Barrel is beginning to sell a sofa stuffed with Hickory Springs’ foam. The Lockport sofa, which is aimed at “green” consumers, has a prize location on its store floors.

Dow dismissals – To lose one may be regarded as a misfortune, to lose two looks like carelessness (apologies to Oscar Wilde).
What is it with Dow Chemical and high profile dismissals? Should the latest jaw-dropper force a root and branch overhaul of board governance?
Dow is unique. It is the only chemical major that has sacked two CEOs/chairmen in the last 25 years. The mercurial Zoltan Merszei – father of the company’s current CFO Geoffrey Merszei – generated enough antagonism among fellow board members to guarantee his ejection back in 1980. And Mike Parker fell on a sword, readily provided by colleagues, in 2002.
And now – exit stage right two career-long old Dow hands accused of plotting behind the boss’s back.
Not that long ago, Dow Chemical was a meritorious-based class apart from competitors hide-bound by either hierarchy, nationality or class, or all three. Happy days.
What has been disturbing about Dow for over a decade now is the absence of team spirit at the highest level. Board members passed over for the top spot have failed to conceal their enmity towards successive victors.
Even from the perspective (read distance) of a European-based sector journalist, intra-board jealousies at Dow Chemical have been allowed to fester. Just how corrosive they have become is now becoming a little clearer.
Was the ‘independent’ Board of Directors unaware, unable or unwilling to tackle the issue?
And what happened to effective corporate governance when one person – currently Andrew Liveris – embodies the triumvirate of CEO, President and chairman
Just taking Stern Stewart’s economic value added (EVA) measure – Dow was failing to added value during Bill Stavropoulos’ first stint at the top during the 1990s. And last March was rated at ‘par’ (ie defined as a company earning near its cost of capital and generating essentially zero EVA, regardless of growth rate).
This alone may not be enough to support the argument that private equity check out Dow. The 2005 10-K and stockholder summary was entitled ‘greater than the sum of its parts’ and yes Dow has an outstanding portfolio. It also has a low market valuation, which can only be justified if leadership and strategy simultaneously fails to convince. Regrettably, convincing the closest colleagues appears to have been the toughest job.

Dow Chemical’s board has authorized a revised slate of board nominees for election at its annual meeting next month, dropping the nomination of former CFO Pedro Reinhard. Dow last week charged that Reinhard and Romeo Kreinberg, executive v.p./performance plastics and chemicals, “were involved in unauthorized discussions with third parties about the potential acquisition of the company.” Both were fired April 12. Dow says it board has also reduced the size of its board by one, to 11 directors, eliminating Reinhard’s seat on the board. The action takes effect at the company’s annual meeting, is scheduled for May 10 in Midland, MI. “The board acted on the recommendation of the governance committee of the board of directors,” Dow says. Dow’s annual meeting Dow’s shareholder proxy materials have already been prepared and include Reinhard as a candidate, but votes for Reinhard will not be counted, according to Dow. “[Proxies] will be voted for the directors nominated by the board of directors as instructed on the proxy, except that votes will not be cast for Mr. Reinhard in light of his no longer being a nominee of the board of directors,” Dow says. Reinhard remains on the Dow board through the annual meeting unless he resigns.

Reinhard, meanwhile, refuted Dow’s charges in a written statement yesterday:
“I categorically deny that I have been part of any secret effort to take over or acquire Dow Chemical,” J. Pedro Reinhard said in a written statement Monday. “It is regrettable that the company has rushed to publicly condemn me in the face of my complete denial of wrongdoing.”

The fact that our industry faces new challenges caused by persistently high feedstock prices has electrified many a conference for the past year or more. But there is another much smaller, but potentially potent challenge to achieving the forecast growth rates for some chemicals.
It comes from the demand side. Consumers, and local governments, are starting to stir environmental concerns into their buying choices. There are many examples of this phenomenon. Individually they are small, but they could add up into a phenomenon that would be significant in the industry’s image and prospects.
Whether you believe they are based on sound science, there are many examples of this burgeoning consumer awareness. European airline passengers are leading the way in buying offsets (translation: are arranging for trees to be planted) to counter the greenhouse gases their travel produces. Several cities and even some countries (Ireland, Australia) are cracking down on the use of the plastic grocery bag and either taxing its use or encouraging/requiring its replacement with cloth or paper bags. In the thought-leading San Francisco Bay Area, one of the best restaurants, Chez Panisse, has taken still bottled waters off its menu, citing as its reasons the transportation costs and greenhouse gas effects of moving a commodity like water from the source to the consumer, and the business of disposing of plastic bottles in landfills.
Are these the first heralds of an age of demand-driven substitution of plastics by paper, maybe to be accompanied by a replacement of man-made fibers by cotton and wool? The answer may lie in our own hands. It is noticeable that the pending San Francisco plastic grocery bag ban gives the retailers the option of switching to paper or corn-based plastics that degrade quickly. Substitution need not be plastics for other materials, but plastics for other plastics. The public’s love affair with the convenience of plastics is not at an end, but it may require much more communication with consumers and a concentration on the virtues and sustainability of the industry to keep that love alive.
Can an industry that is driven by production concerns and the drive to be the lowest cost producer respond to a concerted change in consumer behavior? That is a key question in the years ahead. It’s time for marketing to become as important as production in our large chemical companies.