Rhône-Poulenc S.A. - Company Profile, Information, Business Description, History, Background Information on Rhône-Poulenc S.A.

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History of Rhône-Poulenc S.A.

Rhône-Poulenc S.A. ranks among the world's ten largest chemical companies, with interests in: agricultural chemicals; human and veterinary pharmaceuticals; fibers and polymers; specialty chemicals; and organic and inorganic intermediates. Rhône-Poulenc's business was dramatically internationalized through myriad acquisitions in the late 1980s and early 1990s. By the end of 1993, the company had operations in 140 countries and almost eighty percent of its income came from outside of France.

Rhône-Poulenc traces its history to the formation of two separate companies established in the nineteenth century: the Société Chimiques des Usines du Rhône and the Etablissement Poulenc-Frères. In 1858, a pharmacist named Etienne Poulenc purchased a small drug store in Paris. Soon thereafter, Poulenc's interests extended to more than apothecary supplies, and he began to produce his own specialty products, featuring a line of photographic supplies and products. This early interest in diversification became characteristic of the firm as it grew.

In 1900, Etienne Poulenc's two brothers joined him in his business, and the company became known as the Etablissement Poulenc-Frères. Over the next twenty years, they became associated with other firms in France and abroad. The brothers first joined forces with the Comptoir des Textiles Artificielles (CTA), founded by the Gillet and Carnot families. Collaboration between Poulenc chemists and doctors from the CTA led to the production of many drugs used to treat soldiers during World War I. The 1922 acquisition of the British firm May and Baker strengthened the Poulenc-Frères position in the pharmaceutical industry.

In 1895, while the Poulenc brothers were building their chemical company, the Société Chimiques des Usines du Rhône was being formed in Lyons for the manufacture of dyestuffs and of raw materials for perfumes. This company faced several obstacles during its early years. At the turn of the century, for example, German domination of the chemical industry caused difficulties for this and many other French firms. The Usines du Rhône was forced to stop production of its dyestuffs line, and the company was taken over by the banks, which, in turn, put the company's management into the hands of Nicolas Grillet, one of their chemical engineers. New products then began emerging from the company, among them Rhodine, which became aspirin, and a perfume called Rodo. The latter, exported to Rio de Janeiro for Carnival, brought in as much as three-quarters of the company's profits during this period. Another major development of the firm prior to World War I was the manufacture of cellophane. A 1922 merger between the Gillet family's CTA and the Usines du Rhône produced the firm known as Rhodiaceta.

By the 1920s, a union was developing between Poulenc-Frères and the Usines du Rhône, due largely to their shared association with CTA. It seemed that even greater benefits were to be found in combining their resources. Thus, in 1928, the two firms merged to form the Société des Usines Chimiques Rhône-Poulenc (SUCRP). Two new subsidiaries, Prolabo and Spécia, were created at approximately the same time.

The early growth of the new firm was hampered by the worldwide depression beginning in 1929, which forced SUCRP to consolidate its laboratories into two sites and reduced the company's holdings to three factories. Nevertheless, the company's English subsidiary May and Baker continued with its research and production; a notable discovery of this period was a sulfamide drug made in their laboratories, which was used to cure Winston Churchill of pneumonia. While the firm was able to continue production through the depression, the onset of World War II nearly ten years later limited options even further by creating a shortage of supplies. Even with these limitations, however, SUCRP was involved in two important chemical developments: nylon, which was in only limited production during the war, and the first French production of penicillin. These two innovations gave SUCRP the capital it needed after the war in order to finance the restart of many of its factories.

After the war, Rhône-Poulenc's policies exhibited a growing commitment to research and development. Research became a high priority, as the company relegated four-and-a-half to five percent of its new sales for research. Over time, the firm was divided into five groups, including chemistry, health, textile, agricultural chemicals, and films. This last group, a relatively new endeavor, hearkened back to the days of Etienne Poulenc.

Elsewhere in the industry, there were changes which would again reshape the corporate structure of SUCRP. The Gillet family, whose firm CTA had been so important for Rhône-Poulenc's early development, formed a holding company known as CELTEX in 1952 to consolidate their various interests. Meanwhile, SUCRP continued its moves into pharmaceuticals with the 1956 acquisition of Théraplix, another manufacturer of health products. These two groups were brought together in a critical merger during 1961, with the formation of a holding company to combine SUCRP and its various subsidiaries. Also forming part of this company was CELTEX. Additions in the areas of textiles and films were immediately apparent; the new group's sales were about 60 percent in the textile area.

Rhône-Poulenc continued to build its resources. Between 1963 and 1968 it acquired majority interests in two research facilities, the Laboratoire Roger Bellon and the Institut Mérieux. Two smaller chemical firms, Progil and Péchiney Saint Gobain, were acquired in 1969. These moves strengthened the group's position in the basic products area, as well as in heavy and agricultural chemicals; the former in particular provided the company with a long overdue branch in petrochemicals. These acquisitions prompted further internal restructuring, with the formation of Rhône-Progil from the two most recent additions, and that of Rhône-Poulenc Textile, from CTA and Rhodiaceta. The distribution of sales once again shifted, as chemicals moved to the forefront. By 1969, Rhône-Poulenc had become the largest company in France. This series of mergers, acquisitions, and restructurings helped to establish a corporate identity that would remain throughout the mid-1970s.

Despite its size and position, however, Rhône-Poulenc faced several challenges. The company maintained a strict policy of anonymity, as well as a rather provincial attitude towards expansion. As long as French tariffs remained high, this strategy was effective; its business was conducted internally, and it retained the largest share of the French market for many of its products. Yet tariffs began to fall with the advent of the Common Market, international competition in the French market increased, and Rhône-Poulenc's market position within the industry began to decline.

The company management had also made some grave policy mistakes during this period, the effects of which began to surface. One such decision involved the company's licensing of the major tranquilizer Thorazine, widely used in the treatment of the mentally ill. Instead of manufacturing Thorazine in the United States, where its sales were very high, the company accepted royalties on the product from American pharmaceutical manufacturers Smith Kline & French Co., for whom it was enormously profitable.

Some of the problems in Rhône-Poulenc's market position were solved by the acquisitions of the late 1960s, which shifted the company's emphasis away from a textile market which was slipping in profitability. However, the move towards international expansion initiated at this time was much too late; had it been carried out some time before, it might have assured long-lasting financial health for the company. The delay in making such a move left the company with a very small international market share. In addition, Rhône-Poulenc had the misfortune to expand internationally at the time of an industry-wide slowdown. Attempts to turn around the company's downward slide were severely hampered by a combination of management procrastination and bad timing. The French government's attempts to lower inflation added a further strain on the firm, which was one of many important French manufacturers to show a large deficit by the mid-1970s. The strain necessitated the layoff of 20,000 workers in 1974.

The downward trend continued throughout the 1970s, despite impressive profits from several licensing deals. Moreover, a new managing director, Jean Gandois, failed to effect a notable change after his appointment in 1976. However, a change in the French government during this time changed operations at Rhône-Poulenc dramatically. Determined to reverse the fortunes of what it perceived as a failing French economy, the new socialist government opted for nationalization of many industries. In February of 1982, Rhône-Poulenc's management was assumed by the government.

Among the major changes made by the government in its nationalization of Rhône-Poulenc was the appointment of a new chairperson, Loïk Le Floch-Prigent. His predecessor, Gandois, resigned after the nationalization, due to his irreconcilable differences with the Socialist program. While Le Floch, a former civil servant, had no such ideological conflicts, his was a surprising appointment; Le Floch was only 39 years old and had no experience as an industrialist, having worked as a researcher for the Industry Ministry.

Le Floch's background had a clear influence on his policy, giving research a high priority in his plans for the future of the company. At the time he assumed control, he acknowledged that the firm would need large infusions of government cash if it were to return to prosperity. He also made extensive changes in top management, replacing older executives with younger ones. Another key to Le Floch's strategy was to work more effectively with the unions, whose leaders had earlier criticized Rhône-Poulenc for the massive layoffs.

Le Floch's was not the sole voice dictating company policy. One of the government's primary concerns in its nationalization program was the reorganization of the chemical industry by means of redistributing product lines among different companies. In the process, Rhône-Poulenc lost its status as the largest chemical company in the nation, giving up its fertilizer and petrochemicals divisions. However, the company gained several specialty chemical and pharmaceutical product lines, helping give the company a clearer focus.

A combination of business changes and good fortune strengthened Rhône-Poulenc's prospects for renewal in the following year. The good fortune involved the European market, which began showing a greater demand for chemicals. The additional influences of new management and restructuring, along with extensive financial input from the government, gave rise to a noticeable improvement in the company's financial condition. By the end of 1983, Rhône-Poulenc was making a profit for the first time since 1979. Le Floch began making plans to realize what he saw as the company's full potential. He began closing plants in profitless areas and reducing the workforce, in part through an emphasis on early retirement plans. New areas of production included high-growth products such as the recently strengthened pharmaceuticals division. The company also devoted a large amount of funds for research in these areas, as well as for investment in foreign countries. With this new vitality, Rhône-Poulenc planned on making a significant profit by the government's deadline of 1985.

Although Le Floch's policies were in many ways an extension of those purported by Gandois, new management and the favorable economic conditions paid off for Le Floch. A key factor in this economic revival was the company's expansion into foreign markets, particularly in the United States and Japan. In the mid-1980s, Rhône-Poulenc began several diverse ventures in Japan, in such areas as agricultural chemicals, pharmaceuticals, and rare earth materials. Many of these projects were made as joint ventures; Rhône-Poulenc and Mitsui Petrochemical cooperated to produce computer print boards, while Sumitomo Metal Industries was the firm's partner in its rare earths venture.

In the summer of 1986, Loïk Le Floch-Prigent left Rhône-Poulenc, and its chair passed to Jean-René Fourtou, another government appointee. Fourtou continued the trend of investment outside France. The company's most significant expansion at this time occurred in its farm chemicals area, with the acquisition of all related interests of the Union Carbide Corporation. A large investment for the still struggling company, the purchase was made feasible at least in part by the fall of the U.S. dollar, and through the first U.S. dollar-denominated perpetual floating rate note for a corporate borrower. This transaction provided Rhône-Poulenc with the needed size and influence in the competitive U.S. market, the largest farm chemical market in the world. The move was particularly favorable given the two firms' complementary product lines. Rhône-Poulenc's line was left much more complete than it had been, giving it an additional edge in the U.S. market. Notably, the acquisition did not include Union Carbide's assets in India, where a gas leak at Bhopal had killed some 1750 people two years earlier.

Despite a slight earnings slip, by late 1986, Rhône-Poulenc appeared to be financially healthy once again. One of the best indicators of the company's revival was Fourtou's advocation of early privatization by the government. Before the company returned to the private sector, Fourtou engineered a reorganization with the eventual goal of making Rhône-Poulenc one of the world's five largest chemical companies by the turn of the century.

Toward that end, Fourtou tied his corporation's fortunes to the large American market. From 1986 to 1992, Rhône-Poulenc spent more than $7 billion on acquisitions and sold at least 80 subsidiaries. The purchases hiked Rhône-Poulenc's debt up as the company floated what David Lanchner of Global Finance called "a variety of bizarre securities." Major acquisitions included Canada's Connaught Laboratories, the United Kingdom's RTZ Chemicals, and America's GAF and Rorer Group. By 1992, 75 percent of Rhône-Poulenc's business was outside France, and the corporation had operations in 140 countries. Sales doubled from about $7.5 billion in 1986 to $15.4 billion in 1992. Rhône-Poulenc's U.S. sales increased from 11 percent of its 1987 total to 18.4 percent in 1993.

Fourtou was recognized for his stunning turnaround and globalization of Rhône-Poulenc by the American section of the Societe de Chimie Industrielle, when that group awarded him its Palladium Medal in April 1993. That year, Rhône-Poulenc's long-heralded privatization was realized when French Prime Minister Edith Cresson ended President Francois Mitterand's ban on privatizations and nationalizations. The transfer was made in two stages. In February, the French State sold six million shares (which were later adjusted to 25.8 million after July's 4-for-one stock split), reducing its share of Rhône-Poulenc's capital from 56.9 percent to 43.4 percent. This well-received offering was oversubscribed by a factor of four, and shares sold for a healthy 27 times earnings despite Rhône-Poulenc's large debt (up to Ffr24 billion in early 1994). Total privatization was completed in November 1993 with the sale of 103.2 million shares. By the end of the year, nearly three million people had become new shareholders, and employees held six percent of the company's capital.

Rhône-Poulenc recorded a 36.5 percent decline in net income for 1993, as sales slid 1.4 percent to Ffr 80.56 billion. The contraction was attributed to the effects of a European economic recession and the reform of Europe's Common Agricultural Policy. Fourtou's plans for the newly autonomous company included reducing its debt and developing its Asia/Pacific operations so that they would comprise ten percent of group sales by the end of the 1990s. Rhône-Poulenc planned to focus on China, Southeast Asia, and Japan, utilizing joint ventures to break into those markets.

Principal Subsidiaries: Rhône-Poulenc Chimie; Rhône-Poulenc Chimie N.V. (Belgium); Rhône-Poulenc Quimica SA (Spain); Rhône-Poulenc Italia; Donau Chemie (Austria); Thann et Mulhouse; Texel; Industries Chimiques Mulhouse Dornach; Meyhall A.G. (Switzerland); Rhodiamul (Spain); Rhône-Poulenc Geronazzo (Italy); Scanlates (Sweden); Siliconas Hispania (Spain); Rhône-Poulenc Fibres; Rhône-Poulenc Films; Rhône-Poulenc Rhodia AG (Germany); Rhône-PoulencViscousuisse (Switzerland); Rhône-Poulenc Fibras (Spain); Rhône-Poulenc Nutrition Animale; Rhône-Poulenc Biochimie; Institut Mérieux; Pasteur Mérieux Sérums et Vaccins; Rhône Mérieux; Institut de Sélection Animale (I.S.A.); Connaught BioSciences Inc. (Canada); Rhône-Poulenc Rorer Inc. (U.S.A.); Rhône-Poulenc Agrochimie; Rhône-Poulenc Jardin; Rhône-Poulenc Agro GmbH (Germany); Rhône-Poulenc Agriculture (U.K.); Rhône-Poulenc Agro SpA (Italy); Rhône-Poulenc Agro (Spain); Rhône-Poulenc Agro KK (Japan); Rhône-Poulenc Ltd (U.K); Rhodia S.A. (Brazil); Rhône-Poulenc Inc. (U.S.A.).

Additional Details

Further Reference

Smith, John Graham, The Origins and Early Development of the Heavy Chemical Industry in France, Oxford: Clarendon Press, 1979.

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