Quantum Chemical Corporation Business Information, Profile, and History

History of Quantum Chemical Corporation

Quantum Chemical Corporation (prior to 1988, the National Distillers and Chemical Corporation) is one of the largest U.S. producers and marketers of propane gas petrochemicals--industrial chemicals derived from petroleum refining. The company's USI Division is the country's largest manufacturer and marketer of polyethylene, in which it holds the number one market share, 17 percent, with Dow and Carbide running second and third. Polyethylene is a highly popular plastic that is used, for instance, in milk and detergent jugs, ketchup bottles, film packaging, and snack food bags. The chief raw material in the manufacture of this substance is ethylene, and Quantum Chemical's ethylene "cracker" in La Porte, Texas, is one of the largest in the world. The company is also the largest producer of ethanol--or, industrial alcohol--with a 39 percent market share. Other industrial chemicals produced by the company, acetic acid and vinyl acetate monomer, command the second-largest market share. The small but growing polypropylene business of the early 1990s was becoming significant, especially with the oversupply of polyethylene.

Suburban Propane, the company's second major division and core business, is a distributor and marketer of propane gas for more than 350,000 vehicles in the United States; the chemical is used for home and water heating, cooking, and clothes drying. Quantum Chemical is the largest propane retailer in the nation, dispensing approximately 700 million gallons of propane to 379 locations.

While Quantum Chemical consists of two principal industries, chemicals and propane, this has been true only as of 1988. In January of that year, the company's stockholders adopted the name "Quantum" to underscore the company's commitment to these two industries. Prior to 1988, the firm was identified with the hard liquor and wine businesses as well as many others. A unique characteristic of Quantum Chemical has been its unusual metamorphosis from a diverse company and major liquor dealer into a highly focused firm that has virtually nothing in common with its origins.

Quantum Chemical's history could be said to consist of three histories: that of the original founding company--National Distillers Products Corporation--and those of Quantum Chemical's two principal divisions, USI Chemical and Suburban Propane. The oldest of the three, National Distillers, disappeared and was replaced in 1988 by a new name and identity. Nonetheless, as National Distillers evolved, it had branched out into both the chemical and propane industries.

Quantum Chemical's founding father, Seton Porter, was president of National Distillers Products from the year of the company's establishment, 1924, until 1933. The Great Depression years of the 1930s were extremely trying for the nearly bankrupted company, whose origins as a thriving hard liquor concern stretched back to 1902. Later in the decade, the Prohibition Act, which President Woodrow Wilson vetoed because it was "unenforceable" and "would lead to crime," was passed by Congress over his veto, and sent to the states to be ratified as the Eighteenth Amendment in 1919.

The Distilling Company of America--parent of National Distillers--did not go under, as did so many other liquor concerns with the onset of Prohibition. In 1924 it reorganized as a company that, with a new name and image, could survive and await the turn of events. Headed by Porter, stockholders of National Distillers Products approved the decision to manufacture and market sacramental wine for religious services as well as medicinal and industrial alcohol. The latter would prove to be the company's first step in the relatively new, and soon to be expansive, industrial chemicals industry.

The National Distillers Products Corporation survived the lean Prohibition years, and President Porter was making plans for a resumption of the liquor trade well before the Twenty-First Amendment repealing Prohibition was ratified by a majority of the states in 1933. From then on, the National Distillers Products Corporation took off, expanding vigorously in one of the worst years of the Depression. It acquired Sunny Brook Distilling Company in Louisville, Kentucky, followed by the Overhold Distilling Company with its two plants in Pennsylvania. 1935 and 1936 saw the purchase of Old Crow distillery and a 70 percent interest--which was later expanded to 100 percent in 1986--in John de Kuyper & Son Company. Acquisitions and expansion did not cease even during the stressful years of World War II, when, in addition to a Canadian distillery, a rum concern was purchased in Puerto Rico for the very considerable sum of $647,000.

The World War II years saw the advent of the petrochemical industry. The dearth of raw materials put pressure on industry to find new uses for by-products that were previously discarded as waste. Polyethylene plastic was "discovered" during the war years to be an excellent insulator for wiring, while such staples as industrial alcohol found increasing usefulness in the food and drug industries, especially in packaging.

Emerging from the war with its identity as an alcohol producer intact, National Distillers nonetheless saw a future in industrial chemicals and quickly branched out into this emerging industry. By 1957 the company had so committed itself to industrial chemicals that stockholders altered the company name that year to National Distillers and Chemical Corporation to reflect the change.

The major reason for the name change was National Distillers' acquisition of US Industrial Chemicals, Inc. in 1950, the current USI Division of Quantum Chemical Corporation. US Industrial Chemicals, which would change the identity and future of National Distillers, was one of the largest and oldest industrial chemical concerns in the nation. It was incorporated in 1906, the year U.S. President Theodore Roosevelt's progressive-minded Congress passed a law eliminating the traditional liquor tax on alcohol used for industrial and medicinal purposes. Thus encouraged, the US Industrial Alcohol Company (USIA) was incorporated in West Virginia and boomed thereafter.

USIA was slowly overtaking the Germans' lead in the chemical business, especially after World War I. In 1919 the company became a global leader in the industrial chemical industry when its Curtis Bay plant in Baltimore opened, the first anhydrous--no water&mdashçohol processing facility in the world. By 1938 the Baltimore plant was pioneering the manufacture of cellulose acetate--a plastic used especially in yarn, textiles and photographic film. During the war, great pressure was felt by USIA's research and development personnel to create new industrial chemicals as well as find new uses for such staples as industrial alcohol. One important result was the manufacture of polyethylene, a plastic that would become increasingly indispensable in the postwar years.

At the end of World War I, USIA changed its name to US Industrial Chemicals, Inc., and was successfully pioneering the manufacture of synthetic alcohol from ethylene. Merger talks were proceeding with National Distillers, a longtime producer of industrial alcohol. After the acquisition of USI in 1951, National Distillers became one of the nation's leading manufacturers and pioneers of industrial chemicals derived from petroleum refining.

Several years after the merger, the world's largest anhydrous alcohol plant was built in Tuscola, Illinois, followed in 1969 by the world's largest plant producing vinyl acetate monomer--a chemical used in the production of paints, adhesives, coatings, and many other products--which was located in Houston. With USI's 1984 purchase of ARCO petroleum company's polyethylene plant in Port Arthur, Texas, followed two years later by its merger with Enron Chemical Company, USI became the largest polyethylene producer in the nation.

The year before the ARCO acquisition, 1983, National Distillers and Chemical Corporation had acquired for $273 million Suburban Propane, the largest marketer of propane in the nation, with distribution outlets in 36 states. Suburban Propane's unusual history began in the 1920s, when founder Mark Anton moved out to a New Jersey suburb that lacked gas for cooking and heating. Prompted by his wife's nostalgia for her former gas range, the resourceful Anton discovered a company that produced liquified petroleum gas, or propane, and sold equipment to install the gas in homes. Delighted by having gas for cooking and heating at relatively little cost and effort, Anton wondered whether other families in the suburbs would choose gas over electric. The demand for propane gas, which hitherto had been considered a useless byproduct of petroleum production, was astounding. In 1945 the Suburban Propane Gas Company was incorporated, business was expanded nationally, and by the time the National Distillers and Chemical Corporation purchased Suburban Propane in 1983, its annual sales had climbed to $1 billion (from only $43 million in 1960). Its distribution network had reached virtually every state in the nation. Suburban Propane owned its own pipelines, oil fields, and petroleum wells and was a very predictable, steady business.

The two "halves" of Quantum Chemical Corporation were thus in place by 1983. With so much of the company's business derived from the chemical and petrochemical industries, there ensued a period of reflection and discussion on the future identity and mission of the National Distillers and Chemical Corporation.

By the mid-1980s, Quantum Chemical was not only the largest producer of polyethylene (as well as a major producer of other petrochemicals, including polypropylene, acetic acid, and vinyl acetate) and biggest distributor of propane, but had become the country's largest manufacturer of blankets and was still a major distiller of hard liquor and wines. The post-World War II years had witnessed further expansion into the liquor and wine fields, as well as film processing, fertilizer production, tire valve manufacture, the insurance business and, already mentioned, the manufacture of blankets.

After several years of assessment, stockholders in 1987 approved the adoption of the company's new name, "Quantum," reflecting their dedication to science and to scientific research and development. All businesses unrelated to this mission were sold one by one, including the company's sizeable liquor concerns, for a total of $684 million. Part of this new orientation was the expansion of research facilities, as the Allen Research Center in Cincinnati--headquarters of Quantum Chemical's USI Division. Constructed in 1991, it employs more than 200 research scientists, making it the one of the largest chemical research teams of any chemical corporation in the world.

Under Chairman John Hoyt Stookey, Quantum Chemical became a leader in the petrochemical and propane businesses, which is not without its problems. The majority of Quantum Chemical's sales are derived from its petrochemical products, primarily polyethylene, polypropylene, ethyl alcohol, acetic acid, and vinyl acetate, but is by no means limited to these. These industrial chemicals, byproducts of petroleum production, are used in a seemingly endless array of products: everything made of plastic is derived from industrial chemical production. Because of this enormous, substantial demand for plastics of all kinds, competition for this lucrative market is intense. The recession of the 1990s also presented financial difficulties for all chemical industries, including that of Quantum Chemical, and as a result several plants that had been built during the prosperous 1980s were forced to close. Similarly, with the outbreak of the Persian Gulf War in 1991, the price of ethylene, the essential raw material for many petrochemicals, skyrocketed for Quantum Chemical as for other major chemical firms. As a result of war and recession, a glut of polyethylene forced down the price of this useful commodity.

There also existed the threat of adverse weather conditions, especially affecting propane gas demand, which plunges in warmer winter weather. Another problem for Quantum Chemical was the expense of meeting increasing federal, state, and local environmental regulations, all of which were not without enormous cost. The company met environmental challenges by committing itself to a strategy of voluntary goals that include a 90 percent reduction in the release of carcinogens into the atmosphere by 1999 and a 50 percent reduction of all non-carcinogenic chemicals by 1995. Further, as a founding member of the American Plastics Council, the USI Division of Quantum is committed to recycling, also good for business. Recycled plastic reduces the dependency on foreign oil and is cheap and widely accepted by consumers. A huge new plastic recycling plant was constructed in 1992 for this purpose in Heath, Ohio.

Propane distribution is a far less volatile business than chemicals, the only fluctuation being the weather rather than economic or political conditions. In its infancy during the Depression, Suburban Propane was churning handsome profits. Nevertheless, because of the serious effects of the recession and the Gulf War on the chemical side of Quantum Chemical, Suburban Propane underwent major cost-cutting and streamlining as well as a redoubling of its efforts to secure more new customers.

While the problems facing Quantum Chemical--which was to be merged with Hanson PLC in September of 1993, pending shareholder approval--were very real, the company is well poised to meet the future. Despite some plant closures, Quantum Chemical has, according to market analysts, among the most efficient plants in the world. Cost-cutting and streamlining have resulted in a minimum of job losses but a savings of $25 million a year. The company's exports and foreign market opportunities were expanding. The slack in the polyethylene market could well be overcome by the increasing use of methanol-based fuel in automobiles: Quantum Chemical is a major methanol producer and marketer. Finally, the demand for plastic continued to grow, and new uses were constantly being found. Developing countries were significant users of plastic but were producing little of it; as one of the oldest and most highly evolved of present day chemical companies, Quantum Chemical Corporation stood to benefit.