OM Group, Inc. History

Address:

3800 Terminal Tower
Cleveland, Ohio 44113-2203
U.S.A.

Telephone: (216) 781-0083
Fax: (216) 781-0902

Public Company
Incorporated: 1991
Employees: 324
Sales: $360.96 million (1995)
Stock Exchanges: NASDAQ
SICs: 2899 Chemical Preparations, Not Elsewhere Classified; 5162 Plastics Materials & Basic Shapes; 2819 Industrial Inorganic Chemicals, Not Elsewhere Classified; 2869 Industrial Organic Chemicals, Not Elsewhere Classified

Company History:

Created through the 1991 merger of America's Mooney Chemicals, Inc., Finland's Kokkola Chemicals Oy, and France's Vasset, S.A., OM Group, Inc. is one of the world's largest producers of specialty chemicals made from cobalt and nickel powders and inorganic salts. These seemingly obscure metals are used in hundreds of applications, including (but not limited to) glassware, PVC plastics, industrial and household paint, tires, rechargeable batteries, and ceramics. When formed, OM Group was 96 percent owned by Outokumpu Metals & Resources Oy (former parent of Kokkola and Vasset) and four percent owned by James P. Mooney. OM Group went public in 1993 with an initial stock offering valued at about $129 million. The union's success is illustrated by OM's subsequent growth: sales increased 79 percent from $201.2 million in 1992 to $361 million in 1995 and net income more than doubled from $12 million to $25.9 million during that same period.

Although OM Group operates in what has been called an "arcane niche" of the specialty chemicals market, it boasts leading positions in several of its industry segments. The Finnish operation, for example, is the largest nickel inorganic salt plant in the world, with the capacity to process 6,000 metric tons per year. And although it was the smallest of the three merged businesses, Mooney Chemical ranked as America's leading producer of metal carboxylates for the rubber and paint markets. According to company figures, OM Group has built up 22 percent stakes in both the cobalt carboxylates and cobalt salts markets, 15 percent of the cobalt powders industry, and 13 percent of nickel salts.

Postwar Foundation and Development

Predecessor Mooney Chemical Co. was founded in 1946 in Cleveland, Ohio by namesake James B. Mooney and a partner, Carl A. Reusser. The firm manufactured carboxylates (metal soaps) from a variety of metals, with an emphasis on cobalt. Isolated by Swedish chemist Georg Brandt in 1730 or 1742, cobalt ore was long used by potters and glassmakers to give their wares a rich blue color. The metal's name is German in origin; copper miners who discovered this vexing substance mixed in with their target material cursed it as "Kobold," the "devil's imp." Later research showed that cobalt (like lead) was useful as a drier in paint, printing inks, and petroleum. Cobalt, nickel, lead, and other metal "soaps" were sold by Mooney Chemical under the "Organ-o-Metal Chemicals" brand. Leading paint companies headquartered in Cleveland became Mooney Chemical's most important customers.

The African country of Zaire (specifically its Shaba province) became the world's leading cobalt producer in the 1920s and continued to occupy that position throughout the 20th century, producing about one-third of the world's output in the late 1980s. The vast majority of cobalt ore is found in the presence of copper and nickel ores. The cobalt is separated from the other ores during the smelting process, when it is concentrated in the slag layer. A variety of processes can then be used to extract the cobalt from the slag.

By forging strong ties with copper and nickel miners in Zaire and Zambia, James B. Mooney was able to obtain cobalt-laden slag direct from the source. The personal contacts and high level of vertical integration developed during Mooney Chemicals' early years would become key contributors to the company's success in the decades to come. Strong business relationships helped Mooney maintain its supply of cobalt despite the countries' political and economic vacillations. In 1994, James P. Mooney asserted, "When [cobalt] supplies are limited, we're at the head of the line." Vertical integration helped Mooney Chemicals maintain some of the highest levels of productivity in the cobalt specialty-chemicals industry. In the mid-1990s, for example, OM Group's sales per employee were more than double the industry average, at $850,000 compared with less than $300,000.

Cobalt markets were largely limited to paint and petroleum manufacturers in the 1940s and 1950s, but intractable strikes at Canadian nickel mines helped boost awareness and use of cobalt as a nickel substitute in the late 1960s. Although cobalt was more expensive than nickel, it was harder and more heat resistant. "Superalloys" (combinations of metals that had properties well-suited for particular applications) developed in the 1960s and 1970s further expanded the markets for cobalt to include aerospace, magnets, catalysts, and electronics.

Family Succession Portends Corporate Reorganization

Seventh of the founder's 14 children, James P. Mooney emerged as the one with the interest and intelligence needed to run the family business. Having been immersed in the cobalt trade from childhood (he dined with African mining executives as a teenager, for example), the younger Mooney joined the company in 1971 at the age of 23. Just four years later, he advanced from a sales position to join three of his brothers at the company's top executive offices. That is when the patriarch, who had been diagnosed with Lou Gehrig's disease, retired and moved to Florida.

Because of a corporate aversion to debt, acquisitions were infrequent. Nevertheless, Mooney expanded its product line through the purchases of a Mobil Oil Co. subsidiary in Pennsylvania, Chicago's Lauder Chemical, and Cleveland's Harshaw Chemical in the 1960s, 1970s, and 1980s. By 1984, the niche company's 40 employees generated about $2 million in annual sales.

After about 45 years of family ownership, many in the Mooney clan were ready to divest their stakes in the business. Unwilling to relinquish his birthright, President James Mooney sought out a sympathetic acquirer. He found it in Finnish mining powerhouse Outokumpu Oy, which was then looking for a way to spin off its peripheral cobalt operations. In 1991, Mooney Chemicals, Inc. was acquired for about $50 million and merged with Outokumpu's Kokkola Chemicals Oy (in Finland) and Vasset, S.A. (in France). Renamed Outokumpu Metals Group, the reformed company operated as a subsidiary of the Finnish giant until 1993, when the parent company spun off its 96 percent share to the public as OM Group. James Mooney continued to own about four percent of the "new" firm and serve as its chief executive officer.

The merger dramatically expanded Mooney's geographic reach as well as its product line. OM Group emerged as the self-proclaimed "world's first company to manufacture a complete line of cobalt and nickel powders and inorganic salts." New products targeted customers in the steel, magnet, and battery industries. Foreign sales increased from ten percent of annual revenues pre-merger to just over 50 percent by the end of 1993.

The Mid-1990s and Beyond

OM Group looked forward to reaping the benefits of increased capacity, a strategic partnership, and acquisitions in the mid- to late 1990s. In 1994, the company invested $19.7 million in a physical plant, increasing its capacity to produce specialty chemicals vital to the manufacture of rechargeable nickel-hydride and lithium-ion batteries for the growing array of portable electronic cellular phones, laptop computers, and cordless tools. The mid-1995 creation of D&O Inc., a Japan-based joint venture between OM and Dainippon Ink & Chemicals Inc., was a key component of this strategy. OM hoped that its cooperative enterprise would capture 15 percent of the $470 million Japanese market for cobalt-nickel inorganic compounds by the turn of the century.

OM Group also boosted its capacity to manufacture polyvinyl chloride (PVC) heat-stabilizers. These specialty chemicals composed of barium and calcium zinc were an environmentally correct additive used to help PVC plastics retain their color and strength during manufacturing. These highly specialized substances ended up in such mundane household items as shower curtains, garden hoses, and toys.

In the fall of 1995, OM entered the chemical recycling industry through the acquisition of Hecla Mining Co.'s Apex mining division in Utah. Born of the 1976 Resource Conservation & Recovery Act, companies like Apex recycle used electroplating solutions and chemical and petroleum catalysts and extract the valuable cobalt, nickel, and other metals. These materials can then be reused in (and resold to) the oil refining and electroplating industries.

Although OM's array of products had increased to more than 350 items for more than a dozen industries by the mid-1990s, more than two-thirds of those chemicals were still derived from the company's core metal, cobalt. An estimated one-fifth of OM's revenues continued to be derived from paint ingredients and another fifth was generated by petroleum refining catalysts. The remaining 60 percent of sales were distributed among the plastics, ceramics, rubber, glass, and adhesives industries.

After nearly a quarter-century with the company, James Mooney set up an orderly plan of succession with the promotion of North American operations head Eugene Bak to the dual offices of president and chief operating officer in 1995. Despite all of the changes endured by the company and the industry, this realigned management team faced many of the same challenges and enjoyed several enduring corporate strengths nurtured throughout OM's history. Potential pitfalls included high capital expenses; ongoing turbulence in the cobalt market due in part to upheaval in supplier countries like Zaire; and currency fluctuations, especially against the Finnish markka. OM Group faced these hazards armed with high levels of vertical integration and productivity, a conservative balance sheet, and a zeal for innovation.

Principal Subsidiaries: Kokkola Chemicals Oy (Finland); Vasset S.A. (France); OMG Americas, Inc.; OMG Asia Pacific Co., Ltd. (Taiwan); OMG Europe, GmbH (Germany).

OM Group, Inc. History

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