Hoechst Celanese Corporation History

Company History:

A subsidiary of the enormous German chemical company Hoechst A.G., Hoechst Celanese Corporation manufactured and sold a diversified line of products that included textile and technical fibers, specialty and bulk chemicals, and pharmaceuticals produced from manufacturing facilities scattered throughout the United States, Mexico, and Canada. Hoechst Celanese was formed when two companies, American Hoechst Corporation and Celanese Corporation, merged in 1987, creating a more than $4 billion company involved in the production and sale of specialty and basic chemicals and textile fibers.

The true origins of Hoechst Celanese stretch back considerably further than 1987, when the diversified chemical, fiber, and pharmaceutical company was formed through the absorption of Celanese Corporation into Germany-based Hoechst A.G. Although the company technically came into being early that year, its emergence was an inorganic one, representing the consolidation of one foreign-based company's U.S. operations with those of a smaller U.S.-based company. In fact, the foundation for the Hoechst Celanese Corp. dates back more than a century before its creation in the late 1980s, back to a modest manufacturing site along the banks of the Main River near Frankfurt, Germany, in 1863 and to a small shed in Basel, Switzerland, in 1904. From these two locations, 230 miles and 41 years apart, Meister, Lucious and Company, the predecessor to Hoechst A.G., and Celanese Corporation were born.

With a three-horsepower steam engine and a small boiler, Meister, Lucious and Company began operations in 1863 in the village of Hoechst, near Frankfurt on the banks of the Main River. Inside the boiler, aniline oil and arsenic acid were cooked together, producing a synthetic fuchsia dye, the first of more than 10,000 different dyes the company would develop and manufacture over the next twenty years. By the early 1880s, after recording its initial success with dye production, the enterprise had expanded into other business lines, most notably the discovery and development of analgesics and other drugs. With these new products, Meister, Lucious and Company quickly became a leader in the pharmaceutical industry.

From the outset, producing chemicals was an integral component of the company's business, and in this area Hoechst's predecessor distinguished itself, becoming the core of one of two large chemical cartels formed in Germany after the turn of the century. In 1925, the two cartels merged, forming a single company called Interessen Gemeinschaft Farbenwerke, or IG Farben. With its position as the largest representative of one of Germany's most important industries, IG Farben wielded much power during the years between World War I and World War II. In fact, the company was instrumental in placing company officials in the German senate who became vocal proponents of German rearmament. As the 1933 elections neared, the natural candidate for IG Farben to support was the vituperative and caustic leader of the National Socialist Workers' party, Adolph Hitler.

With Hitler's rise to power and the outbreak of World War II six years later, IG Farben benefitted immeasurably, producing gun powder, chemical weapons, and synthetic materials to fuel Hitler's martial expansion in Europe. By the end of the war, however, IG Farben's support for Hitler and the Nazi cause lead to the prosecution of its directors at Nuremburg and to its dissolution by the Allies in 1952. From this breakup, Farbwerke Hoechst A.G. emerged&mdashquiring a fiber manufacturer, Bobingen AG, during its exit from the old chemical cartel--and began the slow process of rebuilding its position in the worldwide chemical market.

During the postwar period, Hoechst's rebuilding process occurred rapidly. In 1953, the company gained the worldwide rights, exclusive of the United States, to manufacture polyester; that same year it formed a U.S. subsidiary, American Hoechst Corporation, based in Somerville, New Jersey. One year later, Hoechst began to work with polyethylene and polyolefins. In 1956, the company began manufacturing petrochemicals, elevating itself into the upper echelons of the chemical industry to become, once again, one of the leading chemical companies in the world by the 1960s. Expansion continued during the decade, including the acquisition of a Dutch plastic molding manufacturer, the construction of a polyester plant in Austria, a foray into oxo-alcohols in France, and, most important to the future formation of Hoechst Celanese, a joint venture in Europe with Celanese Corporation in 1962.

Celanese Corporation had spent the previous half century primarily manufacturing cellulose acetate products, including cellulose acetate yarn, which was sold as "artificial silk." The company was founded by two Swiss brothers, Dr. Camille E. Dreyfus and Dr. Henri Dreyfus, who, in 1904, began their research in a small shed located in their father's garden in Basel, Switzerland. The two chemists opened their first factory in Switzerland in 1910, initially producing cellulose acetate as a non-flammable motion picture film base, a welcome alternative to highly volatile cellulose nitrate base film. Later, the Dreyfus brothers began producing acetate fiber yarn on an experimental basis, then were invited to the United States by the country's government in 1917 to produce acetate lacquer coat for U.S. military aviation needs. A factory was opened the following year in Cumberland, Maryland, to accomplish this task, marking the beginning of the company's presence in the United States.

After World War I, the two brothers resumed their prewar work, producing at a plant in England the first commercial cellulose acetate yarn in 1921. Referred to as "artificial silk," cellulose acetate yarn production boosted the company's profits, with the first spool manufactured from the Maryland plant completed on Christmas Day, 1924.

After experiencing initial resistance from consumers in the United States, artificial silk production ultimately invigorated the company's fortunes and fueled its expansion into the production of plastics and industrial chemicals by the late 1930s. From the diversification into plastics and industrial chemicals, Celanese was forced to expand into a broad range of business lines during the 1950s and 1960s, when new synthetic fibers such as nylon, polyester, and acrylic introduced after World War II crippled the market for cellulose fiber. Searching for new business ventures related to the expertise that the company had gained over the previous five decades, Celanese moved into the production of polyester, nylon, triacetate, chemicals, plastics, paint, petroleum, and forest products. It was during this diversification during the 1950s and 1960s that Celanese entered into a joint agreement with Hoechst in 1962, linking together for the first time the Hoechst and Celanese names.

Hoechst's rebirth after World War II led to significant diversification and expansion during the 1950s and 1960s, when the company, including its U.S. subsidiary, American Hoechst Corporation, recorded enviable success. However, the 1970s engendered highly disappointing results, when the company suffered debilitating losses in the fibers market. By the beginning of the 1980s, Hoechst was looking for economic relief and a return to greater profitability by eschewing further involvement in man-made fibers and basic chemicals, and instead concentrating on building its interests in specialty chemicals.

In order to achieve this new objective, American Hoechst needed to arrest its financial slide by streamlining its operations and reducing rising costs. In 1981, the producer of chemicals, pharmaceuticals, cosmetics, and other products collected $1.6 billion in sales and earned $24 million. The following year, sales slipped to $1.51 billion and, despite more optimistic projections, earnings suffered a precipitous plunge to $3 million. A company-wide reorganization was effected that year, breaking American Hoechst's business lines into four operating groups--fibers and film, petrochemicals and plastics, specialty products, and health care and agricultural chemicals--which resulted in more encouraging growth in 1983 and 1984. Sales increased from $1.6 billion in 1983 to $1.76 billion in 1984, while earnings rebounded from their debilitating fall in 1982 to $35.5 million in 1983 and then to $53.2 million in 1984.

After these changes had been made, American Hoechst surprised industry analysts with its $2.8 billion friendly bid for Celanese in late 1986. As one observer related to Business Week with regard to American Hoechst's puzzling tender offer for Celanese, "They [American Hoechst] spent 10 years getting out of commodity fibers, and here they are buying one of the biggest," an assessment that, in large measure, was accurate. Roughly half of Celanese's $2.5 billion in sales was derived from man-made fibers, which, once the transaction was approved by governing regulatory bodies, would increase American Hoechst's reliance on commodity-based products. From American Hoechst's perspective, however, the acquisition of Celanese made good sense. The addition of Celanese, with its core businesses in polyester fibers and commodity-based chemicals, would make American Hoechst's parent company, Hoechst A.G., a major player in the U.S. market and one of the largest chemical producers in the world, collecting a combined $17.5 billion in annual sales. For American Hoechst, Celanese's marketing clout and extensive sales network would enable the company to distribute a broad range of new products, as well as significantly increase its annual sales volume from $1.7 billion to $4.2 billion. With these benefits fueling American Hoechst's interest in acquiring Celanese, the proposed merger was submitted for Federal Trade Commission (FTC) approval, while befuddled onlookers cast their doubts as to the prudence of such a merger.

FTC approval was slow in coming, delayed by two requests for further information regarding the merger; by the end of February 1987, though, the FTC had given its assent, ordering American Hoechst to divest certain assets totaling more than $300 million before final approval would be granted. This action was done and the merger was completed, with the new company's senior management selected in March. Slated to head the new chemicals, pharmaceuticals, and fibers company was Jeurgen Dormann, American Hoechst's former chairman, who was named Hoechst Celanese's chairman and chief executive officer. Named to Hoechst Celanese's other most senior positions were Dieter zur Loye, former president and chief executive officer of American Hoechst, who was selected as the new company's vice chairman, and Ernest H. Drew, a former Celanese group vice president, who became Hoechst Celanese's president and chief operating officer. Hoechst Celanese's senior management remained as such until late in the company's first year of operation, when Dormann relinquished his posts as chairman and chief executive officer in December 1987, focusing his talents instead on serving as chairman and chief executive of Hoechst Corporation, Hoechst Celanese's holding company. Drew and zur Loye filled the void created by Dormann's absence, with the former adding the title of chief executive officer to his name and the latter ascending to the chairmanship of the company.

Led by these managers, Hoechst Celanese proved its detractors wrong during its first several years of existence. Annual sales reached $4.61 billion in Hoechst Celanese's inaugural year, then jumped by more than $1 billion the following year, when the company recorded $5.67 billion in sales. Following the company's success in 1988, it recorded $6.01 billion in sales in 1989, a year during which substantial operational changes were effected. Hoechst Celanese reorganized into five major business groups that year, each group structured to comprise the five distinct segments of the company's business. Completed in July 1989, the reorganization left Hoechst Celanese with an Advanced Materials division, which constituted the company's involvement in engineering plastics and other advanced materials that the company expected to become involved with in the future. Through its Advanced Technology business group, Hoechst Celanese conducted its research and development of specialty products, the exploration of certain new business development activities, and the execution of the company's major technical efforts. Rounding off the list of the company's new business groups was its Chemicals division, which comprised specialty and commodity chemicals, its Fibers and Film division, and its Life Sciences division, which focused on pharmaceuticals, animal health, and agricultural crop protection businesses. Concurrent with these operational changes, zur Loye announced his retirement from the company after 34 years of service.

Restructured in this manner, Hoechst Celanese entered the 1990s after registering great success in its previous three years of operation. A $550 million investment program was launched in 1991 to satisfy Environmental Protection Agency regulations and to expand the company's capacity in chemical and fiber production, but the first signal development in the new decade unfolded two years later in 1993, when Hoechst Celanese once again furrowed the brows of industry analysts with the announcement of another acquisition.

Slated for acquisition this time was Copley Pharmaceuticals Inc., a Canton, Massachusetts-based manufacturer of generic and over-the-counter drugs with $52 million in 1992 sales and $12.3 million in earnings. Reacting to the acquisition, the Wall Street Journal remarked, "The transaction brings together two unremarkable drug companies struggling to cope in an industry roiled by the specter of health-care reform and the emergence of powerful managed-care buyers." What alarmed observers most, however, was the price Hoechst Celanese was offering for a 51 percent stake in Copley, an enormous $546 million for a company that collected $53 million in sales a year. Typically, in similar transactions, the acquiring company paid three or four times the annual sales of the company to be acquired, but the price Hoechst Celanese offered was roughly 20 times greater than Copley's sales volume, considering that Hoechst Celanese was acquiring just over half of the company, and 90 times greater than Copley's earnings.

To be sure, the price for Copley was exceedingly high, but there were several mitigating factors that suggested Copley's worth to Hoechst Celanese could not be reckoned in the manner typical of such transactions. In the year before Hoechst Celanese's offer, Copley had recorded a stunning 80 percent sales gain and, as the deal was being negotiated in late 1993, Copley was expected to record an additional 73 percent sales increase, which accounted, in part, for Hoechst Celanese's prodigious offer. Perhaps more important and of more worth to Hoechst Celanese was Copley's solid presence in the generic and over-the-counter drug market, which was expected to grow immeasurably once impending health-care reform occurred and managed-care buyers began looking for less expensive drugs. In the 23 months leading up to Hoechst Celanese's offer, Copley had gained 23 approvals for new products, which promised to augment significantly the company's already sizeable product portfolio of roughly 90 generic, prescription, and over-the-counter drugs. Furthermore, with Hoechst Celanese's ability to obtain bulk chemical supplies, supplies critical to a generic drug company's success, the complementary nature of the acquisition provided a potentially profitable, synergistic relationship between the two, convincing Hoechst Celanese's management that the acquisition was worth the price.

The deal was concluded in November 1993, when Hoechst Celanese obtained a nearly 53 percent stake in Copley for $546 million. The addition of Copley immediately broadened the product line of Hoechst Celanese's pharmaceutical subsidiary, Hoechst-Roussel Pharmaceuticals Inc., making the unit which the Wall Street Journal had characterized as "unremarkable" a burgeoning force in the U.S. drug market.

Hoechst Celanese generated $6.9 billion in sales in 1993, then entered 1994 hoping to begin benefitting from its acquisition of Copley. The company realigned its management team in May 1994, with Drew becoming chairman in addition to the chief executive position he had held since 1988. Karl G. Engels, Hoechst Celanese's vice president, succeeded Drew as president of the company.

As Hoechst Celanese entered the mid-1990s, speculations surfaced that the company would be spun off from Hoechst A.G. to create a separate, publicly held company as early as 1996. Whether or not this public offering occurred, Drew was formulating ambitious plans for the company's growth into the next century, plans that focused on increasing Hoechst Celanese's presence in the U.S. generic and over-the-counter drug market. Although sweeping health-care reform had become less imminent by the mid-1990s, Drew was hoping to increase Hoechst Celanese's sales in health care to $1.5 billion by the end of the decade, largely through expanding the company's position as a supplier in the generic drugs segment and through bolstering its position as a prescription drug supplier in North America. With these objectives driving the company forward, Hoechst Celanese geared itself for the 21st century and beyond, intent on maintaining and increasing its role as a formidable force in the U.S. chemical, fiber, and pharmaceutical markets.

Principal Subsidiaries: Hoechst CelMex Performance Products; Hoechst-Roussel Pharmaceuticals Inc.; Hoechst Celanese Chemical Group, Inc.; Celanese Fibers, Inc.; Amcel International Company, Inc.; Celanese Canada Inc. (56 percent); Celanese S.A.; Corporate Class Software, Inc. (82 percent); Cape Industries Affiliates (74 percent); Interactive Radiation Inc. (20 percent); Celanese Mexicana, S.A. (40 percent); Celgene Corp. (32 percent); Endotronics, Inc. (36 percent); Codon (18 percent); Nova Pharmaceuticals Corp. (3 percent); Codenoll Technology Corp. (16 percent); Ceramics Process System Corp. (7 percent); China National Tobacco Corp.; Polyplastics Co., Ltd. (45 percent); Ticona (41 percent); IB Chemicals Co. (50 percent); RV Chemicals Ltd. (40 percent); Virchen SA/NV (51 percent).

Further Reading:

• Alexander, Suzanne, "Jane Hirsh Saw the Future, and It Was Generic," Wall Street Journal, October 12, 1993, p. B1.
• "American Hoechst Plans New Corporate Structure," Chemical Marketing Reporter, December 2, 1974, p. 26.
• "American Hoechst's '82 Sales Seen Up 15 Percent to $1.8 Billion," Chemical Marketing Reporter, March 29, 1982, p. 9.
• "American Hoechst's Celanese Tender Offer Extended Until Jan. 9," Wall Street Journal, December 30, 1986, p. 2.
• Brockington, Langdon, "FTC Calls For a Sell-Off of Assets," Chemical Week, March 4, 1987, p. 12.
• Bryant, Adam, "Plastic Pipe Makers Plan to Settle Lawsuit," New York Times, October 25, 1994, p. D4.
• Cowan, Alison Leigh, "Hoechst's Puzzling Return to Commodity Chemicals," Business Week, November 17, 1986, p. 65.
• "Fina Agrees to Buy Polyethylene Plant in Texas From Hoechst Celanese Corp.," Wall Street Journal, July 7, 1992, p. B8.
• "Hoechst Celanese Picks Top Managers; Dormann Is Chairman," Wall Street Journal, March 5, 1987, p. 20.
• "Hoechst Celanese Realigns Staff; Drew Is Named Chairman," Wall Street Journal, May 6, 1994, p. B6.
• "Hoechst Celanese Regroups As Zur Loye Steps Down," Chemical Marketing Reporter, June 12, 1989, p. 5.
• "Hoechst Celanese Restructures, Names Four to New Post," Wall Street Journal, February 10, 1992, p. B2.
• "Hoechst Sees Moderation in Growth of Sales This Year," Chemical Marketing Reporter, March 18, 1985, p. 9.
• "Hoechst's U.S. Unit Appoints Zur Loye Chairman, Drew Chief," Wall Street Journal, December 29, 1987, p. 20.
• "Hoechst Unit Clears Hurdle That Held Up Its Offer for Celanese," Wall Street Journal, January 12, 1987, p. 28.
• Hunter, David, "Hoechst Celanese: Betting On Managed Care," Chemical Week, June 15, 1994, p. 40.
• Jackson, Debbie, "Hoechst Revamps for the Future," Chemical Week, June 26, 1991, pp. 65--7.
• Pazstor, Andy, "Hoechst Unit Wins a Round in Celanese Bid," Wall Street Journal, February 25, 1987, p. 26.
• Plishner, Emily S., "Hoechst Repositions in U.S. Pharmaceuticals Market," Chemical Week, October 20, 1993, p. 12.
• Schmitt, Richard B., "Shell, DuPont, Hoechst Are Said to Near Polybutylene Settlement of $750 Million," Wall Street Journal, October 21, 1994, p. A4.
• Shurman, Joseph V., "Born to the Purple," Barron's, July 10, 1972, p. 11.
• Storck, William, "American Hoechst Putting More Emphasis on Profitability," Chemical & Engineering News, November 28, 1983, p. 9.
• Tanouye, Elyse, "Generic Drug Firms Step Into Limelight with Rich Offer for Stake in Copley," Wall Street Journal, October 12, 1993, p. 42.
• ------, "Hoechst Unit Plans to Acquire Stake in Copley," Wall Street Journal, October 11, 1993, p. A3.

Source: International Directory of Company Histories, Vol. 13. St. James Press, 1996.