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Georgia Gulf Corporation is a major manufacturer of several highly integrated lines of commodity chemicals and polymers including aromatic, natural gas, and electrochemical products. Established in 1984 as a leveraged buy-out of Georgia-Pacific Corporation, a large forest products manufacturer, Georgia Gulf began as an extremely successful corporation and was able to take advantage of increases in the demand for salt- and petrochemical products.
The assets that form Georgia Gulf Corporation today were built up by Georgia-Pacific Corporation over a period of 14 years. In 1971, Georgia-Pacific established the first of several chemical plants, phenol/acetone and methanol manufacturing facilities at Plaquemine, Louisiana. Both products are used to make plywood and a wide variety of granulate, wood fiber boards.
Georgia-Pacific added a caustic/chlorine plant at Plaquemine in 1975. Salt mined from large salt domes located nearby is converted into salt brine. Electricity is passed through the solution and chlorine, caustic soda, and hydrogen are formed. Chlorine is used in pulp and paper manufacturing and to make vinyl chloride monomer (VCH), an intermediate to vinyl or plastic resins. Caustic soda, the coproduct of chlorine, is key to the manufacture of aluminum and pulp and paper as well as being a key element in the production of other chemicals.
Later that year a polyvinyl chloride (PVC) resin plant was completed at the site. This facility converted purchased VCM into vinyl resins. These resins are one of the most widely used plastics today and can be found in pipe, window frames, siding, flooring, shower curtains, bottles, medical tubing, and many other end-use products. The vinyl resin facility positioned Georgia-Pacific to eventually produce value-added vinyl compounds.
In 1978, Georgia-Pacific added an ammonia plant adjacent to the methanol plant. This enabled the company to use excess hydrogen, a by-product of the methanol and chlorine manufacturing processes, in the production of ammonia, a key ingredient in the manufacture of fertilizers.
The company built a cumene facility in Pasadena, Texas, in 1979. Cumene, a petroleum product made from benzene and propylene, is used to make phenol and acetone. In addition to resin adhesives, phenol is also a precursor to high performance plastics used in automobiles, household appliances, electronics, and protective coating applications. Acetone is a precursor to methyl methacrylate, which is used to produce acrylic sheeting and in surface coating resins for automotive and architectural markets. It is also an intermediate for the production of engineering plastics and several major industrial solvents.
Georgia-Pacific again expanded the Plaquemine complex in 1979 to include sodium chlorate production. Along with chlorine, the uses for sodium chlorate are primarily industrial. It has major applications in the bleaching process for pulp and paper, and it is also an ingredient in blasting agents, explosives, and solid rocket fuels. In 1980 the Plaquemine facility began producing its own VCM, which integrated the company from raw material to finished vinyl resins.
The company's chemical operations were extended to the northeastern United States in 1981, when Georgia-Pacific purchased an phenol/acetone facility in Bound Brook, New Jersey. Two years later, the company added three resin compounding facilities producing specialty resins. The addition of these plants, in Tennessee, Mississippi, and Delaware, further integrated Georgia-Pacific's vinyl resins into value-added products.
Many companies, spurred on by growth in chemical markets, simply overbuilt capacity, and the limits of this expansion were not discovered until recessionary pressures had already shrunk the market. Companies were left with massive production facilities, but few sales. Georgia-Pacific was no different. After several years of consideration, the company decided to spin off the chemical operations and return its focus to core businesses in the paper and lumber industries.
The first group to organize a plan to take over Georgia-Pacific's chemical interests consisted of five senior executives of the operation, led by James R. Kuse, a senior vice president of Georgia-Pacific who had been in charge of the division for several years.
Kuse and his associates risked long and successful careers with Georgia-Pacific, and set out to raise the necessary capital. Together, the group managed to collect the asking price of $275 million, representing about 20 percent of the asset value. These assets included some of the most technically advanced and efficient plants in the industry.
Having succeeded in making the deal, the owners needed a name for the new company. Locating its headquarters in Atlanta, the name Georgia was linked with Gulf, which represented the company's substantial assets in Louisiana and Texas.
Georgia Gulf came into existence as a privately owned company on January 1, 1985. The first priority of Kuse and his team was to lower costs and increase sales. Already in possession of a viable, integrated chemical enterprise, Kuse only needed a recovery in his company's markets.
This began only months after Georgia Gulf came into existence. The recession ended and demand made its way back through the production cycle to the products manufactured by Georgia Gulf. In fact, demand was so strong that the company's plants operated at more than 90 percent of capacity.
Very strong sales provided an unforecasted increase in available funds, almost all of which were devoted to paying down the company's substantial debt. The debt, which was a result of the leveraged buyout, was not planned to be eliminated until about 1992, but the strength of sales growth virtually eliminated the debt four years later.
This placed the company in an excellent position to go public. The initial offering of 8 million shares on the NASDAQ went off successfully in December of 1987. The following November, Georgia Gulf gained a listing on the New York Stock Exchange, and was listed on the Fortune 500. During 1987, Georgia Gulf shares recorded a 183 percent return.
Through this period of economic growth, Georgia Gulf captured market share as it was one of the low-cost producers due to the efficiency of its operations. In addition, falling oil and natural gas prices helped to further strengthen Georgia Gulf's financial position. Georgia Gulf closed its Bound Brook facility in 1987, later relocating the plant to Pasadena, Texas, where it was closer to raw materials.
With the debt nearly eliminated, Georgia Gulf began to expand by acquiring Freeman Chemical Corporation headquartered in Port Washington, Wisconsin. With six plants, Freeman added a new line of polyurethane specialty resins and brought revenues of up to $1 billion. Also that year, Georgia Gulf purchased the Great River Oil and Gas Corporation, a Louisiana-based petroleum company. Great River provided Georgia Gulf with a potential source for hedging future supplies of natural gas. Georgia Gulf also diverted significant operating income toward the repurchase of shares. The repurchase program was initiated in 1987 and continued for three years.
In 1989, Jerry Satrum, a team member of Kuse's 1985 purchase of the Georgia-Pacific assets, succeeded Kuse as president of the company. Kuse remained chairman and CEO until 1990, when Satrum took over as CEO.
1990 was an extremely difficult year for Georgia Gulf. Although the company had virtually no debt and was well-positioned to weather the anticipated economic downturn, the company was forced to defend itself from a hostile takeover. The takeover attempt, which began in July 1989, was brought to a resolution through a plan of recapitalization, which the stockholders approved in April 1990. The recapitalization plan was a combination of cash distributions, senior subordinated notes, and a new issue of common stock. The company borrowed approximately $746 million and used $65 million from the sale of Freeman Chemical to fund the recapitalization.
The emphasis, therefore, necessarily shifted to sales growth and cost reduction. Already one of the most efficient companies in the chemical industry, there were few costs to cut. While lean, Georgia Gulf still managed to trim nearly 300 jobs.
On the other side of the equation, sales growth was tied directly to the economy, which continued to languish through 1991 and, when recovery seemed imminent, "double-dipped" in 1992. Sales, which hit an all-time high of $1.1 billion in 1989, decreased, with the sale of Freeman, to $932 million in 1990, $838 million in 1991, and $779 million in 1992.
While sales were depressed, Georgia Gulf continued to operate efficiently, maximizing opportunities. By all accounts the company succeeded in preserving itself through the recession, although it was saddled with substantial debt.
In early 1993, demand had begun to recover in the key vinyl resins market. In addition, the provisions of the federal Clean Air Act came into force, dictating the use of cleaner fuels that should increase demand for methanol, which can be used as an oxygenate for gasoline. Forecasted demand for these and other products was projected to remain steady for about three years, during which time the company's debt burden could be reduced.
In an attempt to de-emphasize the sharp effects of the American markets on its business, Georgia Gulf intensified an effort to boost export sales in 1992. This was made more difficult by lingering weaknesses in the world economy. Still, the company managed to make significant sales in European and Asian markets.
If these conditions persist, Georgia Gulf will be able to service its debt obligations and maintain profitability. The company made significant progress in this direction in 1992, reducing its debt from $726 million in 1990 to $444 million in 1992.
Georgia Gulf remains a leader in its various markets, with an annual production capacity of eight billion pounds of caustic soda, chlorine, sodium chlorate, vinyl chloride monomer, vinyl resins and compounds, cumene, phenol, acetone, and methanol. While this makes Georgia Gulf one of America's 30 largest chemical companies, the enterprise continues to be heavily concentrated in a closely related series of markets that remain particularly vulnerable to the business cycle.
As a result, periods of recession are likely to have a negative effect on sales and earnings. Conversely, recoveries are likely to be strong and sustained for periods of several years. During such a period, the company may be expected to devote a slightly lower proportion of its earnings to debt reduction and concentrate on development of product lines closely tied to its core products.
Principal Subsidiaries:Great River Oil and Gas Corporation.
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