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Solutia Investor Day Outtakes
10:48 AM MST | December 16, 2011 | By VINCENT VALK
At Solutia’s investor day here in New York City, the company announced a new dividend and issued its 2012 earnings guidance. That was the big news, but CEO Jeffry Quinn had some other things to say about the company’s solar business, its exposure to European economic weakness, and its M&A strategy.
On Europe, the source of 34% of the company’s revenue base: “We have done well even with a soft economy. Bumpy times are ahead.” However, the company expects to be able to take advantage when construction rebounds on the continent, and its forecasts are based on a “very conservative” view on EU GDP growth.
Some context: IHS Global Insight expects a recession in the euro zone, which seems about right. Also, though Solutia has some promising products in the construction space – and is well positioned in renovations, as well, a market which is doing relatively better – construction does not appear to be turning a corner anytime soon anywhere in the developed world.
On solar: “The market moved to China faster than anyone thought.” Solutia’s acquisition of the Vista solar business has been “disappointing” from a financial perspective thus far, Quinn says, but he think it still makes long-term sense. “The plan was to take a European solar business and make it global, and that’s what we’re doing.”
Some context: It’s true that the solar industry is going through a wrenching transformation as production moves to China and government subsidies are pulled back in the West. However, price parity with conventional energy sources may have arrived.
On M&A: “We see lots of opportunities out there but do not need to make acquisitions to grow. We can pursue targets we want.” That means acquisitions that expand geographic reach, give access to new technologies, and build on the company’s core businesses. Recent deals for Southwall and Aimcore are good examples of this, Quinn says. Solutia is targeting deals under $100 million.
Some context: Not to degrade Solutia’s strategy, which makes sense, but this has been the boilerplate chemical company M&A story for some time now. Solutia’s $100 million cap (which I’d suppose is a bit flexible, Southwall was $113 million) may be a bit low, but everyone is talking about bolt-ons, core competencies, emerging markets and new technologies. There are some very good reasons for this – in an iffy economy, a big deal in a new business can look especially risky, and financing may not be available for that, anyway. Plus, with developed world growth sluggish, at best, everyone wants to be in emerging markets. But it creates a kind of odd situation in which I imagine everyone bidding for the same $50 million specialty films maker. That’s an exaggeration, of course, but the next time I hear the phrase “we’re looking for transformative M&A” emanate from the mouth of a chemical executive, I’ll jump out of my seat.