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Celanese Corporation Business Information, Profile, and History

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History of Celanese Corporation

The Celanese Corporation began as a small company with a simple concept and eventually became a diversified corporate giant. The fortunes and the character of Celanese changed as the business world changed. As Celanese expanded, its leadership lost its single-minded purposefulness as it struggled to direct the complex and vulnerable organization it created.

The American Cellulose and Chemical Manufacturing Company was founded in 1918 by the Swiss chemist Dr. Camille E. Dreyfus and his brother Dr. Henri Dreyfus. In 1927 the name was changed to the Celanese Corporation. Camille Dreyfus was president of the organization from 1918 to 1945, when he became chairman of the board.

The origins of this international corporation can be traced to a small shed in Basle, Switzerland. As early as 1904 the Dreyfus brothers conducted chemical experiments inside a shed in their father's garden. By 1910 they had developed cellulose acetate lacquers and plastic film. This film was used to develop a nonflammable motion picture film base that eventually replaced the volatile cellulose nitrate base. They built a plant in Basle to manufacture these products for markets in France and Germany. This plant, Cellonit-Gesellschaft Dreyfus & Cie., was the parent company of what would become the international Celanese Corporation. The brothers Dreyfus continued their experimentation and by 1913 they had produced high quality acetate fiber yarn in the laboratory. World War I temporarily postponed further acetate yarn research. During the war the brothers produced a flame-resistant acetate lacquer coat for fabric used to cover airplane wings and fuselages. In November 1914 the British Government invited Dr. Camille Dreyfus to come to England to manufacture "dope," as the acetate lacquer coat was commonly called. This was the beginning of British Cellulose and Chemical Manufacturing Company, Ltd., forerunner of British Celanese Ltd. Two years later a French and Italian company were formed to manufacture the acetate coat in those countries. In less than six years, a small Swiss company was now a force in the international manufacturing community. In 1918, after a year of negotiations and delays, Cellulose & Chemical Manufacturing Company, Ltd. was opened in Cumberland, Maryland to produce acetate dope for the U.S. military.

After the war the brothers resumed production of acetate yarn in the England and Maryland plants. In 1921 the British plant produced the first commercial cellulose acetate yarn, dubbed "artificial silk." The initial product was imperfect but its price of $9.00 per pound fared well against silk's $20.00 per pound price, and the company was soon running at a rate close to its initial capacity. The early yarn was sold for use primarily for crocheting, trimming, and effect threads, and for popularly priced linings. The following year the British Company offered a prize of five pounds for a trademark, and the name Celanese was created and eventually adopted by all the related companies. In 1923, with about $13,000,000 of orders on its books, a textile depression rapidly blighted the rosy prospects of the new British company. All of its orders were cancelled and the yarn could not be sold.

While the plant in England was having financial problems, the textile plant in Cumberland was having trouble getting off the ground. Twice the construction work was halted by flooding from the Potomac river. The first flood, in May 1924, caused severe damage and delayed the start of production until December. On Christmas day, 1924 the Amcelle plant produced its first spool of acetate yarn. The first U.S. yarn met with resistance from consumers reluctant to try a new product and from silk manufacturers who maintained the product's inferiority to silk. At the time acetate was introduced in the U.S. practically all better dresses were made of silk; by the 1950's less than two percent were silk.

Although the "artificial silk" initially met resistance, by 1939 the business began reporting huge profits. A practical method of dying the yarn, developed by the brothers Dreyfus, Dr. René Clavel, a Swiss dye chemist, and George Holland Ellis, an English chemist, greatly improved the product's salability. By that time the company had expanded beyond its acetate yarn into the production of industrial chemicals and plastics.

Celanese's burgeoning success met with the apparent fortuity of high textile demand between World War II and the Korean War. Yet the high demand was more artificial than real. Government contracts were responsible for the high demand during World War II. Following the war, the demand for soft goods, repressed during the war, was tremendous. Then scare buying associated with the Korean War presented another artificial stimulus.

By the early 1950's Celanese, along with Avisco and Du Pont, dominated the cellulose fiber market. Yet at the same time new synthetic fibers, such as nylon, polyester, and acrylic made a dramatic entrance into the market. These fibers, which were only in the laboratory or early production stage at the end of World War II, held their shape better than acetate, were more wrinkle-resistant, and dried more quickly. To compound things, the advent of the new fibers was accompanied by a sudden style shift toward natural fibers such as cotton. As demand for acetate plunged, prices dropped and Celanese was in serious trouble.

Camille Dreyfus was contemptuous of the new fibers and was known to collect newspaper clippings of Du Pont's early troubles with nylon. Dreyfus's dogged reliance on acetate as the company's main product could have spelled disaster for Celanese. Yet under the leadership of Harold Blancke, president of Celanese from 1945 to 1969, Celanese diversified by expanding into the production of polyester, nylon, triacetate, chemicals, plastics, paint, petroleum. and forest products. Blancke realized before the new fibers damaged acetate demand that Celanese depended too heavily on acetate fiber. Blancke believed that Celanese should develop new product lines related to its existing raw materials, products, and markets. He also believed that the new products should serve human needs and thereby have a built-in growth potential. Finally, Blancke wanted products that could be marketed overseas, away from the crowded American economy.

Ironically, Blancke's decision to diversify signalled the beginning of a cycle of diversification and concentration that has plagued Celanese's attempts to remain a dominant force in the chemical industry. The chemical division of Celanese Corporation had its origin in the necessity for developing, at a low cost, a volume source of acetic acid to supplement the then existing supplies. Acetic acid was used in the making of many of the company's products. including acetate yarn. A pilot plant was put into operation at Cumberland in 1941 and a larger plant was opened in Bishop, Texas in 1945. Under Blancke's diversification program Celanese's sales rose from $264 million to over $1 billion. But by the late 1960's many of the foreign ventures went sour and Celanese began selling off many operations it had acquired during the diversification program. Adding to Celanese's troubles was a fashion change in which double-knits replaced single-knits, wiping out around 20% of the acetate market.

John W. Brooks, who ran the acquisitions program under Blancke, succeeded him in 1968, just as the selling-off process was beginning. Brooks assumed the helm in the face of sagging prices and severe criticism of Celanese's technological abilities. Critics charged that Celanese had been a laggard in synthetic fiber technology. Instead of developing a full-market line of various synthetic fibers, Celanese had throughout the 1960's remained too heavily oriented towards acetates and polyesters. This orientation left Celanese at the mercy of the vagaries of the everchanging fashion industry. Critics argued that Celanese, instead of developing new technologies, had relied on marketing products developed by others. This, according to the critics. resulted in Celanese's lingering dependence on acetates.

To revive the faltering company's fortunes, Brooks planned diversification into building materials, health care, and hospital supplies, among other things. He also instigated a massive corporate restructuring program. In 1973 Brooks's actions seemed to meet with success. Foreign demand for Celanese's synthetic fibers, plastics, and chemicals sent prices rising. But soon thereafter the Arab oil embargo began, causing severe price increases and shortages in raw materials.

In response to the apparent vulnerability to cyclical swings in synthetic fibers, John MacComber, who succeeded Brooks as president, planned another diversification campaign in the early 1970's. Yet MacComber's diversification plan, like Blancke's, in the end failed to produce positive results. In 1976 Celanese registered the lowest return on stockholders' equity among the 13 diversified companies in Forbes's yardstick.

In another attempt to revitalize the company, MacComber employed a new management technique. He created a six-man managing group similar to the European approach, which MacComber believed would lead to "open and frank participatory management." Secondly, diversification having failed, MacComber decided to concentrate on the company's chemical business. Unfortunately, Celanese's dependence on industrial chemicals and fibers left it prone to the cyclical nature of world markets. MacComber was criticized for not diversifying to relieve Celanese's dependence on commodity chemicals and fibers and to create a cushion for losses. Commentators speculated that Celanese's unwillingness to pay high acquisition costs explained its failure to diversify.

One casualty of the failed diversification campaign was Celanese's proposed stock-swap merger with the Olin corporation. MacComber thought that the acquisition of the $1.5 billion producer of brass, water treatment chemicals, and other products would provide Celanese with needed economic balance. The deal, however, fell through.

Some analysts believed that Celanese's need for developing a "recession-proof" business should have overcome its hesitation over making expensive acquisition. Yet MacComber avoided diversification and concentrated on boosting the efficiency and productivity of existing operation. This policy led some observers in 1979 to wonder whether Celanese was priming itself as a takeover candidate.

The takeover, however, never occurred. Celanese had its three most profitable years in history between 1979 and 1981, earning a record $144 million on sales of nearly $3.8 billion in 1981. MacComber's strategies seemed to have been vindicated.

However, earnings dipped in 1982. Several factors contributed to Celanese's downturn that year. First, the Chinese government severely restricted polyester imports which eliminated a 200,000 ton per year market for Celanese. Secondly the oil glut hurt Celanese's sales of guar gum, a drilling mud thickener. Finally, just as the company's Mexican affiliate began production, the Mexican economy weakened and the peso was devalued. The company recovered, however, and by 1983 stock was trading at near-record highs.

The company also developed new lines in the 1980's, such as methanol, polybenzimadole, and high conductivity graphite fibers. The company initiated a major research program into methanol-fueled cars in the early 1980's. Proclaiming methanol "the fuel of the future," the vice-president of marketing, John Luaer, said that the chemical's potential as an auto fuel was enormous. While less efficient than unleaded gas, methanol offered significant benefits as well. Its proponents argued that methanol would improve air quality because it burned cleanly, produced low amounts of particulates and sulfur, and reduced levels of nitrous oxide and ozone formation. Moreover, because methanol can be produced from nearly any hydrocarbon, it was seen as a significant ingredient in the country's progress toward energy self-sufficiency.

In 1983 Celanese build a $20 million plant to produce polybenzimadole (PBI). PBI was invented by a former E.I. Du Pont de Nemours and Co. chemist with research backing from the Air Force. Unlike most thermal-protective fabrics, PBI did not melt, produce a stiff char, or dissipate into smoke even when directly exposed to flame.

The Air Force promoted the production of PBI because of its potential to improve the safety of fighter pilot suits. When the Air Force decided to produce the chemical outside the laboratory in the 1960's Celanese was awarded the contract over Du Pont. The company then designed the manufacturing process for PBI. After the fire that killed three Apollo astronauts in 1967, NASA incorporated PBI into the outer shell of its space suits. Celanese began full-scale production of PBI in the 1980's under the leadership of manager Bob Stultz.

While the company struggled to find its economic identity in the 1980's it was not without legal troubles as well. In 1980 the manager of a Celanese plant in South Carolina was sent to jail for four years after pleading guilty to federal charges of transporting stolen goods across state lines and racketeering. The government charged that the plant manager illegally supplied Mitsubishi with Celanese technology for specialized film used in, among other things, satellites, rockets, computers, and x-ray films. The estimated value of the technology was $6 million.

In 1985 former employees of Celanese's defunct Hilliard, Ohio plant filed a $1.1 billion lawsuit, charging the corporation, its subsidiaries, a former plant manager, and other chemical manufacturers with an intentional tort, negligence, and loss of consortium after the workers allegedly were exposed to polyvinyl chloride and vinyl chloride monomers. The plaintiffs suffered various illnesses, including lung and throat cancers, throat polyps, skin rashes, and several nerve disorders.

Despite these and other setbacks, the corportion's stock price tripled between 1984 and 1986, due to the efforts of then Chairman John D. MacComber. He accomplished this feat through restructuring and buybacks. Unfortunately, such gains were temporary and still did not address Celanese's major problem of non-diversification. Celanese's greatest obstacle to growth and financial security has always been its dependency on a single market. That problem was resolved, at least for Celanese's executives when the company was acquired by Hoechst, a West German chemical company. Hoechst acquired the company on November 3, 1986 in a friendly takeover for $2.8 billion dollars, roughly $245.00 a share.

The takeover was a major investment for Hoechst, and was perceived by industry analysts as an effort by Hoechst to take on Bayer and BASF (two larger West German chemical companies) for their share of the U.S. chemical market. Hoechst's move was taken with skepticism by some investors. News of the acquisition caused Hoechst's stocks to decline by $4.48 per share.

Hoechst admits that the acquisition will initially depress earnings. However, the company plans to use Celanese's marketing clout and network to distribute new products and use Celanese's strong cash flow for further research and development of new products. In the short term, Hoechst's takeover of Celanese may be just what Celanese's doctor ordered. However, only time will tell if the acquisition of Celanese was the cure for what ailed Hoechst.

Principal Subsidiaries: Celanese Fibers Operations; Celanese Ltd.; Celanese Speciality Operations; Pama Manufacturing Inc.; Celanese SA; Celanese do Brasil Fibras Quimicas Ltd.; Celanese Canada Inc.; Celanese Chemical Co., Inc.; Indal Industries do Alfarroba Ltda.; Meyhall Chemical AG; Celanese Research Co.; Virginia Chemicals Inc.; Celanese International Co.; Virchem SA/NU; Virchem Canada Inc.; Celanese France SARL; Celanese Japan Ltd.; Amcel Industra e Participacoes Ltda.

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Company HistoryFinance: Holding Companies

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