National Starch and Chemical Company - Company Profile, Information, Business Description, History, Background Information on National Starch and Chemical Company

10 Finderne Avenue
Bridgewater, New Jersey 08807-3300

Company Perspectives:

National Starch and Chemical Company is, and will remain, a global specialty products company with demonstrated expertise in its fundamental competencies of natural and synthetic Polymer chemistry.

History of National Starch and Chemical Company

A subsidiary of U.K. giant Imperial Chemical Industries PLC, National Starch and Chemical Company is a major manufacturer of adhesives; sealants; specialty synthetic polymers; electronic and engineering materials; and specialty food, healthcare, and industrial starches. Its products are used in a wide range of applications, including packaging, foods and beverages, paper, textiles, electronics, furniture, skin lotions, and hair care products. With its headquarters in Bridgewater, New Jersey, National Starch has a global reach, employing more than 10,000 people at 158 facilities located in 36 countries spread across six continents.

Founding the Company in 1895

National Starch was established in 1895 by a 25-year-old New Yorker with the unusual name of Alexander Alexander. Responding to an advertisement in a local newspaper for a business for sale at 11th Avenue and 45th Street in Manhattan, he was able to purchase the National Gum and Mica Company for $1,200. The company used corn, potatoes, tapioca, and other vegetable starches to produce adhesives, used in preparing paper and textiles for printing. It also produced related products such as mica pulp and gold gums. By 1912 the business was successful enough to relocate to new facilities on 59th Street as well as purchase a small pigment company, Crescent Color Pigment, located south of New York City in Dunellen, New Jersey. This acquisition allowed National Gum to become involved in the manufacture of pigments for coated paper and wallpaper. It was a highly profitable sideline for decades, because only after World War II did wallpaper companies decide to mix their own colors.

Most of National Gum's business came from fast-drying adhesives, the need for which grew rapidly during the early decades of the 1900s, primarily because of the rising demand for packaged goods. In addition, the company supplied its adhesives to the paper and leather goods industries. When National Gum began to compound adhesives for the box industry in 1920, it ushered in a period of tremendous growth, as revenues tripled by 1926, reaching $1 million. At the same time, Alexander abandoned Manhattan, moving to Dunellen to be close to his production base. It was also in 1920 that Alexander's son-in-law, Frank K. Greenwall, joined the company. He would ultimately head the business and be involved with the company for more than 60 years, providing continuity in management that extended into the next century.

In 1928 National Gum changed its name to National Adhesives Corporation after merging with two smaller adhesives companies located in upstate New York and Ohio. To support its growing business the company constructed a dextrin refinery in Plainfield, New Jersey, which opened in 1934. Demand for starch-based adhesives continued to grow despite the Depression, necessitating the acquisition of a corn starch company to insure a steady supply of starch and consistent pricing. In 1939 National Adhesives became even more involved in the starch business when it acquired Piel Brothers Starch Co., located in Indianapolis, and as a result changed its name once more, this time to National Starch Products.

Continued Prosperity Following Alexander's Death in 1940

In 1940 Alexander died but the company he founded continue to prosper. Military needs during World War II open up new areas for National Starch. Its scientists found new uses for starches in such areas as textile and food products. The company developed synthetic adhesives suitable for any climate, which proved extremely useful in wartime applications. During the 1940s National Starch also created polyvinyl acetate for use in high-speed packaging. By the end of the decade, annual sales reached $16 million, as the company began to transform itself from a modest adhesives company into a large specialty company. Over the course of the 1950s, revenues rose significantly as National Starch made an even greater commitment to research and development. Greenwall was named chairman in 1958 and was instrumental in integrating marketing and research functions. He also was aggressive in merchandising new products and growing the business through acquisitions. To reflect the new breadth of its operations, in 1959 the company changed its name to National Starch and Chemical Company.

By 1961 annual revenues grew to $60 million, and the company continued to grow by both internal and external means, domestically and internationally. To improve distribution, National Starch began building regional manufacturing facilities in 1963. It also settled on a product mix that would remain consistent for many years to come: 40 percent adhesives, 40 percent starches, and 20 percent specialty chemicals. As a result, the company created new divisions in 1968: Adhesives, Resins and Specialty Chemicals, and Starch. National Starch took an important step in expanding beyond the United States in the late 1960s when it acquired Le Page's Ltd., Canada's largest maker of consumer glues, and Australia's Adhesives & Resins Pty Ltd. Over the ensuing years, National Starch also acquired major stakes, if not 100 percent, of adhesive, starch, and seasoning companies in Britain, France, Holland, Mexico, Japan, and South Africa.

Sound business practices were aided by good luck to some extent in the 1970s. The company's researchers developed a modified starch that had properties of gum arabic, resulting in a product called Capsul. When the largest supplier of natural gum arabic, the Sudan, cut its output, National Starch was ready to take advantage. In a similar way, when the Environmental Protection Agency banned solvent-based adhesives, the company was well positioned with its lines of hot-melt adhesives and water-based emulsions. Also during the 1970s National Starch used acquisitions to help gain market share in the automotive, machinery, and appliance industries. The 1974 purchase of California-based Ablestik Laboratories opened the door to selling high-performance epoxy-based adhesives to the microelectronics industry. The following year National Starch acquired Permabond International Corp., which produced cyanoacrylate and anaerobic instant adhesives used in the automotive, electronics, and consumer markets.

Despite having the ability to use its corn mills to produce high volume commodities like corn syrup, laundry starch, or ureaformaldehyde for plywood, the company remained committed to manufacturing and marketing specialty items that carried a much higher margin and avoided the volatile price swings suffered by so many companies that sold commodities. Management was conservative, as evidenced by its 1975 purchase of a used laboratory building to serve as the company's new headquarters, but there was no arguing that it was highly successful. National Starch reached a turning point in the late 1970s, however, when Greenwall reportedly feared a hostile takeover of the company. In 1978 he was approached by the AngloDutch food and detergent giant Unilever about a possible buyout. Unilever had been formed in 1930 when Brothers Lever of England merged with the Dutch Margarine Union. Because of tax implications, and a bit of corporate pride, the new entity became a two-headed multinational, with both a British and Dutch component that managed to function as a single company. Unilever was not averse to spending money on acquisitions, but it was reluctant to stray too far from the industries it knew well. National Starch, which sold raw materials used by many Unilever units, was a company that fit into that mold. Unilever offered more than double the book value to acquire the stock of National Starch, much of which was owned by insiders and officers, for a deal totaling $484 million. It was a generous offer that Greenwall, who owned a 15 percent stake in the company, maintained he had to accept for the sake of shareholders. Although he freely admitted that he personally profited from the transaction, his contention that he would have faced lawsuits from angry shareholders if he had not accepted the offer was probably more than just a jest.

In reality, life with Unilever as a corporate parent brought virtually no change to the day-to-day affairs of National Starch. Unilever did not even install one of its officers on the company's board. Moreover, National Starch continued to do business with Unilever's biggest competitors, Colgate-Palmolive and Procter & Gamble. For that matter, the company also did business with its own direct competitors, such as selling specialty starches to Heinz and Borden, which also had adhesives divisions. National Starch continued to operate with the same respect for customer confidentiality as it had before the Unilever purchase.

In 1980 National Starch ranked 449 on the Fortune 500 and a year later jumped to 405, with consolidated sales of $668 million and net income of $41.4 million. Following Greenwall's tenure, other longtime executives of the company stepped up to assume leadership positions. In fact, every president and CEO of National Starch throughout its history had risen through the ranks of the company. In 1986 National Starch topped $1 billion in annual sales. James A. Kennedy, who had joined the company in 1962, became president and CEO in 1990, and under his leadership National Starch continued to expand its global reach and breadth of products, which now totaled more than 2,000 in number. He was instrumental in an early entry into Asia, which proved to be a major source of growth. The company also produced record results each year, an unbroken string that stretched back to the early 1970s. In 1994 National Starch surpassed $2 billion in revenues.

The 1997 Sale of National Starch

Unilever continued to be a hands-off corporate parent, and because National Starch was very much a cash cow in Unilever's four-company specialty chemical unit, there was no reason to interfere. By 1997 Unilever decided, however, to concentrate on consumer products and put the four specialty chemical businesses on the block. In addition to National Starch they included the British firm of Crosfields and Dutch companies Quest International and Unichema International. A year earlier Imperial Chemical Industries (ICI) had attempted to buy the unit but had been rebuffed. ICI's new CEO, Charles Miller Smith, had previously worked for Unilever and was familiar with the specialty chemical companies. He inherited a business in ICI that was exposed to the price swings of the commodity chemical industry, with shares that lagged behind the London stock market by some 25 percent. As Smith searched for possible acquisitions that could help lift ICI out of the mire, he kept coming back to the four Unilever specialty businesses. When Unilever announced that it was ready to unload the unit, either piecemeal or whole, Smith was ready to make a preemptive offer to purchase the entire package. Major competitors of National Starch, including Henkel, H.B. Fuller, and Elf Atochem, also appeared ready to weigh in with bids. Although Unilever could have conceivably realized more money by selling the businesses separately, it proved to be a willing seller and quickly came to terms with ICI, which in the end agreed to a debt-free price of $8 billion for all four specialty businesses.

In conjunction with the sale to ICI, Kennedy was appointed chairman and CEO of the subsidiary, and elected an executive director of the parent company. As with Unilever, National Starch was allowed to operate with no interference and continued to produce record results. In May 1999 Kennedy announced that after 37 years with National Starch he was retiring. As was the tradition of the company that stretched back more than a century, senior posts were filled from within. William H. Powell, the executive vice-president of the Industrial Starch and Food Products Division, was named the new chairman and CEO. Walter F. Schlauch, the company's chief operating officer, also assumed the role of president. In the final year of the century, National Starch produced its 30th consecutive year of growth in operating profits. At the same time new management prepared for a new century, instituting a restructuring effort that closed eight older factories in favor of more modern plants. Likewise, two R&D centers in Europe were scheduled to be relocated to newer, state-of-the art facilities.

Although more stable than commodity chemical companies, National Starch was still dependent on the well-being of the global economy. In 2000 the company's three-decade stretch of record growth was interrupted, although it still remained a profitable business. Not only did National Starch face an unprecedented increase in the price of raw materials, as well as spikes in the cost of energy and freighting, it had to contend with a significant downturn in its North American sales. Attempts to increase prices in keeping with these conditions were too late to have significant impact for the year.

With the U.S. economy slipping, coupled with the lingering effects of the terrorists attacks of September 11th, National Starch faced even greater challenges in 2001. Demand for its products fell while the cost of energy and raw materials continued to rise. Management initiated cost reduction measures, which included a 9 percent reduction in headcount. Revenues fell by 7.1 percent over the previous year and operating income was off by 17.5 percent. Nevertheless, National Starch still generated revenues of $2.56 billion and posted operating income of $336 million, a performance in extremely adverse economic conditions that was a testament to the company's underlying strength.

Principal Operating Units: Specialty Polymers and Adhesives/Europes; Specialty Polymers and Adhesives/Americas; Natural Polymers; Advanced Ingredients; Electronic and Engineering Materials.

Principal Competitors: Akzo Nobel N.V.; BASF Aktiengesellschaft; Dow Chemical Co.; Henkel KGaA; H.B. Fuller Company; Elf Atochem.


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