July 2 (Bloomberg) -- Royal DSM NV is considering an exit from caprolactam used in plastics, carpets and car parts as the Dutch chemical company focuses on its growing nutrition division, two people with knowledge of the situation said.
An initial plan to only examine options for the merchant part of the operation, where the chemical is sold to third parties, has been extended to the whole caprolactam business, said the people, who asked not to be identified because the talks are private.
A potential exit from caprolactam after more than 60 years in the business highlights the extent of Chief Executive Officer Feike Sijbesma’s transformation of DSM from a traditional chemicals company into a nutritional products-based one. He sold fertilizer, melamine and petrochemical units, while pumping at least $3.1 billion into nutrition. DSM announced a nutrition deal yesterday with the purchase of Unitech Industries Ltd. of New Zealand for an undisclosed sum.
Caprolactam accounts for the bulk of DSM’s 1.6 billion euros ($2.1 billion) in sales at its polymer intermediates business, which employs about 1,500 workers. Revenue declined 16 percent last year on lower volumes and prices, with profit at the division slumping about 68 percent as it struggled to pass on higher benzene prices to customers.
DSM also uses caprolactam internally for its own engineered plastics, including the Novamid nylon resin used in cars, providing security of supply.
Valence Group Ltd. is assisting DSM in exploring the options for caprolactam, according to one of the people.
Herman Betten, a spokesman for DSM, said the company doesn’t comment on speculation. Valence declined to comment.
DSM shares climbed as much as 1.8 percent to 51.34 euros, erasing earlier declines, and were up 1.4 percent as of 11:59 a.m. in Amsterdam. That extended the gain this year to 12 percent, compared with a 2.6 percent decline in the 17-company Bloomberg Europe Chemicals Index.
DSM is predicting a further deterioration in results for caprolactam this year, it said at its first-quarter results in May. The company is partnering with China Petroleum & Chemical Corp. to build a 400,000-ton caprolactam plant, the largest in the world, at a cost of about $300 million. Demand there continues to grow, Chief Financial Officer Rolf-Dieter Schwalb said May 2.
The CFO reiterated this year that DSM was exploring all options for the caprolactam merchant side of the business. DSM operates a caprolactam plant in Sittard-Geleen, the Netherlands, another in Augusta, Georgia, and has a joint venture with Sinopec in China, where new entrants to the industry plan additional factories.
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