You would be hard put to find a dealmaker whose instincts were so beautifully in sync with the quick-buck mentality of the 1980s. After grabbing control of a floundering GAF Corp. during a proxy battle in 1984, Samuel J. Heyman used Drexel's junk-bond network to launch takeover runs against rival chemical companies such as Union Carbide and Borg-Warner. He never bagged his prey, but he pulled down about $500 million in profits from his investments. The crescendo came in 1989: Heyman took GAF private in a leveraged buyout valued at $1.452 billion.
Well, after two years in the quiet groves of private ownership, GAF and its chairman are now bursting back into public view. In late June, Heyman sold 17.8% of GAF's $512 million specialty chemical unit to the public in an equity offering that raised about $250 million. But that doesn't mean he's going back into dealmaking. These days, Heyman, 52, prefers to be thought of as an industrialist. In fact, he has grand designs to expand GAF's presence in Europe and the Far East--a move that will put the company into more direct competition with German giant BASF, one of the world's largest chemical companies.
BIG STAKE. GAF's remaining nonchemical operations--a roofing-products business and a New York classical-music radio station--will remain in private hands, namely Heyman's. He invested $42.5 million of his own money in the GAF buyout back in 1989, and owns 85% of GAF's nonpublic units and 70% of the chemical company. At the market value established by the equity offering, Heyman's stake is worth more than $1 billion on paper. So is the public offering merely a golden opportunity for Heyman to cash out? Not a chance, he says. "I've not taken a nickel out since the LBO, and I have no intention of doing so for the foreseeable future," vows Heyman, a former real estate developer and Yale-trained lawyer who worked under Attorney General Robert F. Kennedy.
In fact, Heyman plans to focus on paying down GAF's debt and expanding its promising chemical unit, which now trades under the fancy moniker of International Specialty Products Inc. The stock hasn't budged much from its opening offer of 15 1/2. But investors may be missing something: By all accounts, ISP is a jewel of a niche business.
ISP turns out more than 200 chemical products, mostly additives and enhancers with gobbledygooky names such as gantrez, plasdone, and polyclar. These additives play a variety of roles--from waterproofing to solidifying to clarifying--and are used in everything from Colgate's antitartar toothpaste to Heineken beer. Others strengthen industrial materials such as plastics. "It is one of the best specialty chemical product lines in the world," says Fred Siemer, an independent analyst who tracks the chemical industry.
And as the ISP name suggests, Heyman has big plans to expand GAF's chemical business overseas. He will spend $75 million to build a plant in Western Europe in 1993. Another is planned in the Far East for sometime in 1995. But with debt at a scary 50% of total capital, ISP will have to move cautiously. What's more, ISP's international fling could yet go awry, as it faces a number of larger and more experienced rivals in Europe.
The biggest threat of them all will come from BASF, which also produces a number of the products that ISP sells. BASF is 40 times the size of ISP and is the leading producer of butanediol and tetrahydrofuran--two additives that contribute about 5% of ISP's profits.
And BASF is also expanding into higher-margin products such as chemical additives for hair spray. That has been a long-cherished market for ISP--and one where the company has traditionally made a considerable amount of money. "GAF has typically anywhere from a 40% to a 70% share in these markets," declares Anantha K. S. Raman, an independent analyst.
GAMBIT. Back at home, Arco Chemical Co., Atlantic Richfield's petrochemical spin-off, is also moving into ISP's turf. It has just opened a new plant in Channelview, Tex., that will produce the same plastic chemical additives that ISP puts out.
Even so, there's reason to think that Heyman's overseas gambit might just pay off. For one thing, the debt pressure on GAF's chemical unit is starting to subside. All of the proceeds from the $250 million public offering will go to pay down debt. And Heyman says he would like to pay off an additional $150 million of the unit's remaining $400 million in debt by 1993. He'll probably have the cash to do it, thanks to the chemical unit's current earnings roll. Last year, operating income reached $133.1 million, up 15% over the year before, on sales of $511.7 million. And operating margins, which have traditionally hovered around 25%, hit 28% during the company's recent quarter.
The recession has pummeled other specialty chemical makers, but ISP has thrived. It enjoys a dominant position in a variety of niches. And as the market leader among smaller companies, ISP has pricing flexibility. One example is gantrez, which is used in Colgate's antitartar toothpaste. ISP is the only domestic supplier, and the company will raise prices by up to 6% this year.
Still, ISP sees most of its future growth coming from beyond these shores. And to Heyman's credit, the company has already built up its foreign business. ISP's overseas sales have swelled to 50% of total revenues, from 30%, during the seven years he has been at the helm. But aside from a joint venture with Huls of Germany, most of the company's foreign sales come from exports. That means the company spends millions on transportation costs. So Heyman plans to invest in production facilities in Europe to get closer to the company's customer base and improve profit margins.
Get Heyman talking about the Far East, though, and you'll really see a gleam in his eye. He recently opened sales and marketing offices in China, Taiwan, Singapore, and Korea. Heyman predicts that these fast-growing Asian markets will be ISP's most profitable foreign chemical operations by the end of the decade.
SMALL WONDER. If Heyman succeeds in expanding ISP's foreign business, he just might erase his image as an opportunistic dealmaker. Other factors are helping: The U. S. attorney's three-year-old insider-trading case against GAF and Vice-Chairman James T. Sherwin may have finally run its course. After two mistrials and a conviction that was overturned on appeal, the government has yet to prove that Sherwin or the company illegally benefited from stock trades made during the takeover attempt on Union Carbide Corp. "That whole thing wasan outrage," says one GAF insider. Still, the government may seek yet another trial.
After all the excitement GAF experienced during the last decade, small wonder Heyman prefers to mind his own business. It may lack the glitz and big windfalls of raiding. But if ISP's foreign gambit pays off, Heyman may find that building his own business is far more satisfying than trying to snatch someone else's away.
A RAIDER'S RESUME 1984 Wins control of GAF in proxy fight 1985 Launches unsuccessful takeover bid for Union Carbide. Profit: $250 million 1987 Goes after Borg-Warner but comes up short. Profit: $206 million 1987 Buys and sells 9.8% position in CBI Industries. Profit: $7 million 1988 Buys and sells 6.2% position in Cabot. Profit: $23 million 1989 Takes GAF private in a leveraged buyout valued at $1.42 billion 1991 Takes part of GAF public for $250 million DATA: BW