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Maker Of Specialty Chemicals Sees Demand Soar For Its Products
Thursday June 26, 6:14 pm ET

Most people aren't familiar with titanium dioxide. But they undoubtedly know the products it's found in.

The chemical is used to make paints whiter. It deflects harmful solar rays in sunscreens. It's even used in medicines, foods and cosmetics.

Rockwood Holdings knows TiO2 well. The Princeton, N.J.-based company is one of the top providers of the chemical in the world. A new joint venture with a Finnish company will boost its position further.

But that pigment is just part of Rockwood's complexion.

The specialty-chemical maker supplies construction, automotive, plastics, electronics and other industries. Its lithium is in demand for high-performance batteries, and in pharmaceuticals. Its ceramics are used to make replacement hip joints, and high-end electronics.

The company has shed some noncore businesses, giving its operations better focus. But it has kept itself useful to a wide range of end-users, which protects it from slowdowns in any one sector.

Since most of its compounds are inorganic, it also hasn't been stung by rising oil prices.

"ROC ranks as one of the quality specialty companies, thanks to its attractive and diverse business portfolio, catering to high-growth end markets that produce consistent profit margins and limited exposure to petrochemical feedstock costs," Goldman Sachs analyst Robert Koort wrote in a research note. Goldman Sachs has done investment banking business with Rockwood and was involved in its public offerings.

Rockwood isn't completely immune from the slowing U.S. economy.

Its color pigments business, its wood treatments and stains products all saw lower volume in the last quarter because of the slowdown in the U.S. housing market. The company was able to raise prices, but it expects the lower volume to continue through this year.

The weak dollar has also made it easier for other companies to match or beat its price in Europe on titanium dioxides.

Its titanium dioxide joint venture in Europe, announced last month, should help.

Rockwood will own 61% of the joint venture with Finland's Kemira Oyj holding the rest. Rockwood's Germany TiO2 plant currently supplies mostly synthetic fiber markets and reported $480 million in sales last year. Kemira's factory supplies pigments for packaging inks, cosmetics, food and pharmaceutical industries.

The deal gives Rockwood larger scale in the European TiO2 market and a broader customer mix. The joint venture will have two factories rather than the one Rockwood currently operates.

Rockwood will also have one fewer competitor in that market and an nearly $300 million influx of cash, which analysts think it can put to good use for smaller bolt-on acquisitions.

Credit Suisse analyst John McNulty said in a client note that the deal "is a good strategic move as ROC deals with a competitive TiO2 environment that has become more challenged by the strength of the euro." Credit Suisse is underwriting Rockwood's secondary offering. And an affiliated company, DLJ Merchant Banking Partners, is a major investor.

Rockwood has built itself up through a series of joint ventures and acquisitions.

The private equity firm Kohlberg Kravis Roberts formed Rockwood in 2000 to buy specialty chemical businesses from British firm Laporte.

Since then, Rockwood has made 14 acquisitions, and ditched three noncore businesses. Its biggest acquisition was the $2.3 billion deal for German specialty chemicals and advanced materials company Dynamit Nobel.

The company manufactures its chemicals in 91 facilities in 25 countries.

It has 60,000 customers, mainly in Europe and North America. No one customer accounted for more than 2% of sales last year.

It doesn't lean heavily on any one sector. Its largest industry end-user -- the metal treatment and general industrial sector -- accounted for 16% of sales. Automotive and construction industries each accounted for 14% of sales.

KKR and the Credit Suisse affiliate DLJ Merchant Banking Partners took Rockwood public in 2005.

At the time, they didn't sell any shares. But last year, those private equity firms and some management sold off more than 10 million shares in a secondary offering. Earlier this month, the company announced another offering of at least 10 million shares.

Last year, sales grew 12% to $3.1 billion. Earnings per share jumped 32.6%, to $1.87.

In the first quarter of this year, sales grew 14% to $854 million. EPS climbed 35% to 58 cents. "These positive developments in the current environment are the results of the diversity of our end markets, a balanced exposure to different geographies and our constant attention to innovation and productivity," chairman and CEO Seifi Ghasemi told analysts in a conference call.

Company officials did not respond to a request for comment.

Rockwood will report second-quarter results on July 30. Analysts expect earnings of 60 cents per share, on revenue on $902.1 million in sales.

For 2008, analysts expect earnings of $2.18 per share.

Source: Investor's Business Daily

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