Calgon Carbon Corporation

400 Calgon Carbon Drive
Pittsburgh, Pennsylvania 15205
Telephone: (412) 787-6700
Toll Free: (800) 422-7266
Fax: (412) 787-4511
Web site:

Public Company
Incorporated: 1985
Employees: 1,150
Sales: $336.6 million (2004)
Stock Exchanges: New York
Ticker Symbol: CCC
NAIC: 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

Calgon Carbon Corporation is a Pittsburgh, Pennsylvania-based public company dedicated to granular activated carbon, a material that has the ability to absorb odors and chemical pollutants. Calgon Carbon divides its business into four units. The Activated Carbon unit is dedicated to the manufacture of 100 types of granular, powdered, and pelletized activated carbon products at four facilities located in the United States and China. The unit also sells custom-designed carbon adsorption, or particle collection, systems. The company's Engineered Systems division helps customers to design and build water purification and disinfection systems, odor control systems, and solvent recovery and distillation systems that rely on carbon adsorption as well as ultraviolet light and ion exchange separation technologies. The Services Options unit maintains air and water purification systems for customers on a fee basis, as well as picking up spent carbon for reactivation. Finally, the company's Consumer Products unit uses activated carbon to make carbon cloth, charcoal briquettes, and consumer products that include Purrfectly Fresh, a pet and household odor remover; PreZerve, tarnish-preventing jewelry storage products; and BreatheSafe, a washable respirator mask capable of filtering odors, gases, mists, fumes, and dust. Calgon Carbon also maintains a European operation, Chemviron Carbon, based in Brussels.

Company Roots Dating to World War II

Calgon Carbon grew out of the Pittsburgh Coke & Chemical Company, Inc., which in 1942 as part of its military effort during World War II developed a way to use coal-based activated carbon in gas masks. As described by Forbes in a 1988 article, "Coal is 'activated' by heating it to temperatures as high as 1,800 degrees Fahrenheit, which opens up the coal's minute pore structure. When liquids or gases pass through the activated carbon, organic chemicals are attracted and cling to the coal grains' vast network of surfaces. Vast? One pound of activated carbon, which looks a lot like a pound of ground coffee, has a total surface area of 125 acres." After World War II the company's Activated Carbon Division continued its pioneering efforts, in the mid-1950s developing a sugar decolorization process using activated carbon and in 1960 finding a way to use granulated activated carbon to purify water. Two years later the division supplied 40,000 pounds of granular activated carbon for the groundbreaking water treatment system installed by the Virginia-American Carbon Company. Now called the Pittsburgh Activated Carbon Company, the business was acquired by Calgon Corporation in 1965, where it retained its autonomy, responsible for its own manufacturing and marketing. The unit changed corporate parents in 1968 when Calgon Corporation was acquired by pharmaceutical company Merck & Co., Inc. At the time, the activated carbon division, renamed Calgon Carbon, was generating about $11 million in annual revenues.

As the United States began setting more stringent clear air and water standards, Merck believed that there was major growth potential for activated carbon. Those expectations were heightened by the passage of the Safe Water Drinking Act and the Clean Water Act in the early 1970s. To make its products even more attractive, the company began offering its water treatment equipment on a lease basis, with trained company personnel providing maintenance. Calgon Carbon believed that not only was there business to be done in the United States but in Europe as well. In 1970 the company formed Chemviron Carbon, S.A. in Brussels in order to market its products, engineering services, and water pollution systems in Europe. Later in the decade Calgon Carbon looked to the Far East, in 1978 creating a joint venture with Mitsui Chemicals, Inc. and Mitsui & Co., Ltd. to serve markets in Japan, Korea, Taiwan, and later on in China.

Failed Investments in the 1970s and Management Buyout in the 1980s

During the 1970s Merck invested heavily to increase Calgon Carbon's production capacity, spending $75 million to open new activated carbon production and reactivation facilities in the United States, Belgium, and the United Kingdom. Merck was not alone in its belief that the market for activated carbon was about to explode because of environmental legislation. Competitors Westvaco and Carborundum also built new plants. By the end of July 1977 the water industry was supposed to be in compliance with the Clean Water Act. As the company manager at the time, Thomas McConomy, recalled in a 1991 Executive Report interview, "Newspapers were full of all this being required, who was in compliance, who wasn't. The date came and went and nothing happened. No increased demand. Then a competitor started up a new production plant and they were hell-bent to sell it out so they cut prices, and margins were hurt." To make matters worse the United States implemented a payment in kind (PIK) program with farmers, providing them with certain materials in storage in lieu of growing crops. "One of the big markets we were serving at that time was water treatment for the agricultural chemical industry," McConomy explained. "Well, PIK drove them completely out of the game. And Merck said, this is not our business." Calgon Carbon's sales hovered around the $100 million mark, and in 1982 net income totaled $6.6 million, a far cry from the 15 percent on gross assets that Merck's management desired.

Merck put Calgon Carbon up for sale, attracting three offers, but the deal Merck chose fell through. Frustrated by the situation, McConomy began thinking about a leveraged buyout to take the company private and allow it to control its own future. McConomy had grown up in the Pittsburgh area, earned a chemical engineering degree from Carnegie Mellon University in 1955, gone to work for Calgon Carbon's predecessor, and begun making his way up the ranks of management. Once he became interested in buying the business McConomy sought advice from his brother, a partner at the Pittsburgh law firm of Reed Smith Shaw & McClay, who put him in contact with one of the firm's attorneys, Harry Weil. One afternoon over lunch, the two men sketched out some numbers on the back of a menu, according to McConomy (and on the back of a napkin according to Weil). McConomy then approached an investment banker, a former Calgon Carbon salesman who had intimate knowledge of the business. After he also received positive feedback about the idea of a management buyout from a local bank, McConomy in January 1984 met with Merck President John Huck and broached the subject. "John looked at me, then swung around in his chair and stared out the window for about five minutes," according to McConomy's recollection. "He finally swung back around and said, all right, if you can make us a fair offer and you have an idea of where the money is coming from, we will give full consideration to it."

McConomy recruited four other managers to join him in the buyout. Together they were only able to scrape together $817,000, of which $325,000 came from McConomy, who mortgaged his house, borrowed against insurance policies, and cashed in stock options early. Despite the lack of cash, McConomy was able to meet with the president of Merck's specialty chemicals division and make his pitch about Calgon Carbon's potential, maintaining that prices would soon stabilize and competitors were likely to drop out. At the very least McConomy kept his group in the game and was told to come back with an offer when they had secured their financing.

A year would pass before the management group was able to cobble together a $90 million package to buy Calgon Carbon, composed of $77.5 million in cash, a $5 million note, and $7.5 million in preferred stock. In addition, Merck held a $10 million note that became payable if Calgon Carbon went public within 20 years or other specified events occurred. The deal was almost scuttled at the 11th hour when the principal lender, Citibank, continued to try to extract better terms. Despite the risk, McConomy decided to ditch Citibank. He now turned to Bankers Trust, where he found more than a receptive lender. The bank, to his surprise, pitched him on why he should do business with them. In the end, Bankers Trust lent $51 million, Travelers Insurance contributed $25 million, and Teachers Insurance & Annuity Association bought one million shares for $500,000 and lent another $9.5 million. Teachers also received warrants to purchase 3.5 million shares. On April 1, 1985 the buyout was completed and Calgon Carbon Corporation was born.

McConomy and his managers were assuming a great deal of risk in what was one of the most highly leveraged management buyouts (LBOs) of an era filled with LBOs. Interest payments alone totaled almost $9 million a year, at a time when the company's cash flow was $11.3 million. But McConomy's rosy scenario of what awaited Calgon Carbon turned out to be understated. Competitors dropped out, sales surged, interest rates dropped, and the company's new production processes lowered costs. As a result, sales reached $138 million and net income totaled $11.4 million, well above management's projections. Business was so strong that the company was actually in danger of being victimized by its success. The deal struck with Teachers now became an issue. As McConomy explained to Executive Report , Teachers "had warrants that could have taken their total holdings to 45 percent. Under our agreement, beginning [1991], they could have forced the company to buy those warrants and that stock from them. And it was to be at a certain multiple of earnings…. We would have actually had to releverage the company even more than it was originally leveraged, to pay Teachers."

Company Perspectives:

Calgon Carbon is the world's largest manufacturer of granular activated carbon with production and operations in North America, Europe, and Asia.

Because Teachers had never intended to become a long-term investor, Calgon Carbon offered the insurer a chance to cash out after just two years, offering to buy back half of its holdings at a premium, and then take the company public. Teachers agreed, the other lenders acquiesced, and in 1987 Calgon Carbon made an initial public offering (IPO) of stock. As a result, Teachers' $500,000 investment turned into a $77 million windfall. In addition, Merck was in line for another $13.4 million, the $10 million note plus interest that was triggered by the IPO. Calgon Carbon also benefited from the offering, which raised $30 million used to pay down the company's sizable debt.

Calgon Carbon prospered for the rest of the 1980s. After more than doubling in price the stock was split, as sales and earnings continued to build. About $40 million in sales came from the 1988 purchase of Degussa AG, a West German charcoal producer. At the start of the 1990s the company earned $38 million on sales of $285 million, but conditions would soon begin to deteriorate. Activated carbon was such an important material that most people considered it recession-proof, but the recession of the early 1990s dispelled that notion. Sales to municipalities, which accounted for 17 percent of sales, dried up. Revenues reached $308 million in 1991 and then began to slip. Two years later sales dropped to $269 million.

Introducing New Products in the Mid-1990s

Colin Bailey, a member of the management team that bought Calgon Carbon from Merck, was named CEO in 1994, while McConomy stayed on as chairman. Under Bailey the company launched a new line of purification products in an effort to improve the company's fortunes. After ten years of research and development the company introduced the Centaur family of activated carbon products with enhanced adsorptive ability and catalytic capabilities, making the material suitable for a wide range of commercial and home uses. Bailey also tried to grow the company through acquisitions, completing three deals in 1996. The company supplemented its activated carbon business by adding the perox-pure operations of Vulcan Peroxidations Systems, Inc. and Canada's Solarchem Enterprises, to become the world leader in advanced oxidation. Also in 1996 Calgon Carbon bought Advanced Separation Technologies Incorporated, a chromatographic separation equipment manufacturer, a transaction that proved less than satisfactory and led to Calgon Carbon suing the company's previous owners for misrepresentations and breaches of warranties in the acquisition agreement. A better fit was another 1996 acquisition, Charcoal Cloth (International) Ltd., a U.K. manufacturer of cloth-infused activated carbon.

Although Calgon Carbon added significantly to its sales, the acquisitions failed to live up to expectations, resulting in a sagging stock price. Bailey resigned suddenly in late February 1998, citing philosophical differences with the board, and McConomy stepped in as CEO on an interim basis. The company also hired Morgan Stanley & Co. to consider how best to maximize shareholder value. Calgon Carbon was soon put up for sale, but the bids were so low, reportedly half of the desired $13 to $15 range, that the company did not even bother to negotiate with any of the lukewarm suitors. Instead, the company elected to remain independent and made an effort to live within its means. A restructuring plan was implemented that included a 10 percent cut in payroll.

A new CEO, Jim Cederna, was hired in July 1999; he also would replace McConomy as chairman. He boasted more than 20 years of experience with Dow Chemical Company, where he gained a wide range of experience in research, commercial development, and sales as well as management. He did a great deal to restore morale at the company, which had seen the price of its stock sag to the $5 level and sales tail off. During Cederna's tenure, Calgon Carbon began offering consumer products in 2000, some of which were sold on QVC Inc.'s Home Shopping Network. They included Purrfectly Fresh, PreZerve, and WaveZorb, a product that protected cellular telephone uses from microwave radiation. Under Cederna, the company also established a manufacturing plant in China and created a joint venture with Mitsubishi Chemical Corporation of Tokyo to manufacture and sell activated carbon products and provide related services in Japan. But in the end Cederna's plan to broaden Calgon Carbon's customer base beyond municipalities and industrial clients to general consumers failed to gain enough traction to offset the loss of traditional sales to cheaper foreign competition. Sales fell from $270.6 million in 2001 to $258.1 million in 2002, both years in which the company reported sizable losses and the price of the company's stock fell as low as $4.

Cederna resigned in February 2003, replaced as acting chairman by McConomy and acting CEO by John Stanik, a 12-year veteran of the company. A few weeks later the board made both appointments permanent. The company's business rebounded somewhat in 2003, as the company returned to profitability on sales of $278.3 million. Calgon Carbon also developed a three-year plan to grow the business and acquired a company, Waterlink Specialty Products, in a deal that was completed in 2004. Waterlink supplied carbon-based air and water purification equipment to both the United States (through Barnebey Sutcliff Corp.) and the United Kingdom. Seven new products were introduced in 2003, which flowed out of the new Business Development Organization. The company had to contend with rising costs and competitive price pressure, yet enjoyed another year of improved performance in 2004, when sales reached $336.6 million and income totaled $5.9 million. On balance, management believed that the company was once again headed in the right direction.

Key Dates:

The company is launched as part of Pittsburgh Coke & Chemical Company, Inc.
The business is acquired by Calgon Corporation.
Calgon Corporation is acquired by Merck & Co., Inc.
A management team acquires the company.
Calgon Carbon is taken public.
The company completes several acquisitions.
The company's first consumer products are introduced.
John Stanik is named CEO.

Principal Subsidiaries

Chemviron Carbon GmbH; Calgon Carbon Canada, Inc.; Chemviron Carbon Ltd.; Solarchem Environmental Systems, Inc.; Charcoal Cloth Limited; Advanced Separation Technologies Incorporated.

Principal Competitors

MeadWestvaco Corporation; WEDECO AG Water Technology; USFilter Corporation.

Further Reading

Baughmanand, Hank, and David Hasley, "Pittsburgh's Newest $100 Million Man," Executive Report , May 1, 1991, p. 18.

Davis, Christopher, "Calgon Carbon Looks to Purchase to Expand Geographic Reach, Product Line," Pittsburgh Business Times , February 13, 2004, p. 6.

Gannon, Joyce, "Pittsburgh-Area Calgon Carbon CEO Makes Quick, Quiet Exit," Pittsburgh Post-Gazette , February 26, 2003.

Meeks, Fleming, "Perfect Timing," Forbes , June 13, 1988, p. 58.

Teaff, Rick, "McConomy Activating Public Calgon Carbon," Pittsburgh Business Times , February 20, 1989, p. 1.

——, "Officers Retaining Control in Calgon IPO," Pittsburgh Business Times , May 11, 1987, p. 1.

—Ed Dinger

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