A corporation with its headquarters in Overlook Center on Route 1 just south of Alexander Road was recently sold to another chemical company. The acquired company has a very light footprint, taking up less than one floor of Overlook with its staff of 35. But what was remarkable about the transaction was the price tag: Albermarle, a Louisiana-based conglomerate, is paying $6 billion in cash and stock for Rockwood Holdings, a specialty chemical company that has rarely advertised its presence in the Route 1 corridor despite having become one of its most successful businesses.
Rockwood has $1.3 billion in sales, employs more than 3,500 people around the globe, and is the world’s leading producer of lithium, a critical component in high performance batteries. As Rockwood CEO Robert J. Zatta says, “lithium is a good business to be in today, but it will be an better business five years from now as electrification continues to progress.”
From the company’s IPO in 2005, its shares have risen from around $20 to $83 at the time the Albermarle sale was announced, outperforming the S&P 500 by a considerable amount each year. (Shareholders will vote on finalizing the transaction in a meeting scheduled for November 14.)
Over the years, Rockwood’s management team has bet big on lithium, buying up new lithium mines, and selling off other divisions of the business until Rockwood Holdings encompassed just two companies: Rockwood Lithium, and Rockwood Chemetall, a maker of industrial surface treatments that serves as a cash cow for the lithium side.
Rockwood’s history goes back to the industrial revolution. In 1888 a German-born British chemist named Bernard LaPorte founded a company with the idea of making hydrogen peroxide. The chemical was good for bleaching wool and straw hats — two pillars of the British economy at the time — and there was no domestic source of it.
LaPorte’s small operation grew into one of Europe’s largest chemical companies, with subsidiaries all around the world, making pigments, additives, specialty chemicals, compounds, and many other lines of business. Its U.S. operations ended up in Princeton, chiefly because its top person lived in the area.
But by 2000 the company had fallen on hard times, and its largest components, including its American businesses, were bought up by the New York-based private equity and leveraged buyout firm, Kohlberg Kravis Roberts.
KKR renamed these divisions Rockwood Holdings, and hired a management team in Princeton to turn them around. In 2001 the new owners brought on board CEO Seifi Ghasemi, an Iranian-born Stanford graduate who had spent years working in chemical companies such as GKN and the BOC group. His right-hand men were CFO Robert Zatta and general counsel Thomas J. Riordan. The future of the company was not straw hats, but lithium.
Lithium is a light metal, and the lightest solid known to man, sitting at number 3 on the periodic table right below hydrogen. Its unique properties make it useful in a mind boggling array of applications, especially ones that require high energy density. Lithium is used in triggers that fire off airbags, in X-ray machines, telescope mirrors, pesticides, cook-top stoves, air filters for submarines, drugs to treat bipolar disorder, and experimental fusion reactors. The use that caught Rockwood’s attention was batteries.
Lithium-ion batteries are the standard high performance battery used in almost every electronic device from smartphones to laptops to remote-controlled helicopters. It’s also the battery of choice for electric cars such as the Tesla Model S, which is powered by 1,000 laptop battery cells containing about 47 kilograms of lithium.
And although only around 25,000 Model S sedans have been produced, various forecasts of demand predict the lithium battery market to doubling by 2018 and quadrupling by 2020 mostly due to exponential growth in electric vehicle sales. Rockwood believes there is the further possibility of explosive growth in the lithium market if smart power grids adopt lithium technology for enormous backup batteries, which would require many tons of lithium each. Currently, Rockwood’s sales are mostly pharmaceutical compounds and agriculture, chemicals and plastics, and other miscellaneous uses, with batteries making up only 12 percent of its business. But batteries hold the largest potential for future growth.
Zatta, who was CFO of Rockwood Holdings until Ghasemi stepped aside in June to run another chemical company, Air Products in Allentown, Pennsylvania, says the lithium business was attractive even in the early days of Rockwood.
“Lithium has been around for a very long time, and we knew it was a good business,” Zatta says. “But to the outside world, lithium was not a big enough component of the total to get the kind of visibility that we thought it deserved. That is why we began to separate our portfolio into core and non-core businesses. We wanted to re-allocate our resources to the core businesses, which would help fund those with tremendous growth potential.”
There are two major ways for extracting lithium from the earth. One is to mine rocks that are rich in lithium, crush them, and extract the element. The second is to take naturally occurring brine that is rich in lithium salts, pump it from underground reserves to the surface, and evaporate it, passing it through a series of open-air ponds until there is nothing left but water that is highly saturated with lithium. Rockwood owns both kinds of facilities: Silver Lake, Nevada, is a brine facility and the only active lithium mine in the United States. Kingston, North Carolina, is an ore site that is not currently mining anything because it is not cost effective compared to the brine operation. Rockwood operates a processing facility there, and could resume mining if the cost of lithium rose. Rockwood has a second brine operation in Salar de Atacama, Chile, in a remote desert.
In 2010 the company began large expansion projects in its existing lithium mining and processing facilities in Nevada and North Carolina, and later that year split the lithium operation into its own division instead of being part of the specialty chemical company. In 2012 Rockwood began expansion of a plant in Chile. In 2013 the company bought a 49 percent share of Talison Lithium in a joint venture with a Chinese company to control a large lithium mine in Australia.
It also steadily sold off its businesses that were unrelated to lithium and industrial surface treatments, to finance investment in the latter. In 2011 it sold a compounding business. In 2013 it sold Advanced Ceramics, a company that made knee and hip replacement parts. It also sold off its titanium oxide pigments and clay additives businesses.
That left Rockwood with just its lithium business and its surface treatments business. The lithium business is headquartered in Frankfurt, Germany, and includes production sites in Germany, India, Taiwan, Chile, Tennessee, Nevada, and North Carolina. Chemetall (pronounced Shem-e-tall), the surface treatments division, is also headquartered in Frankfurt and has production sites all over North and South America, Europe, Africa, Asia, and Australia.
Automakers dunk entire car frames in Chemetall treatments before they are painted, aiming to reduce metal corrosion and improve paint adhesion. Its main customers are luxury car makers in Germany, as well as Tesla in California and Airbus jets in Europe. Chemetall makes up the bulk of Rockwood’s income at the moment, bringing in more than $770 million a year. The Lithium business accounts for more than $470 million in sales.
“We knew once we sold off the non-core businesses that we were a very good business with tremendous potential,” Zatta says.
Things did not always look so rosy for Rockwood. When Zatta joined the team in 2000, the entire management staff was working out of a small office at 22 Chambers Street. Princeton had been chosen as the headquarters not for any logical reason, but because there had been a Laporte sales office there.
It was quite a change for Zatta, who has a BS in business administration from Merrimack College and an MBA from Fairleigh Dickinson and whose previous job was at Campbell’s Soup in Camden, where he had worked for 15 years in a variety of finance positions. Zatta had grown up in Tenafly, where his father owned a small eyeglasses business. Zatta says he had picked up some of the entrepreneurial spirit that ran in his family, and he wanted to work in an environment with quick decision-making instead of a long chain of command.
Rockwood, with its small management team, definitely provided that. “We didn’t have any bureaucracy,” Zatta recalls. “We didn’t create levels and layers of management for the sake of having process. We were very much focused on getting things done.”
The business is run on a decentralized basis, with the managers of individual units given the autonomy to run things how they needed to be done. “If they had a big capital project, or if they needed approval to shut something down, they only had to talk to myself and Seifi. And now that he’s not here, basically just myself.”
Rockwood’s leaders were crammed into close quarters. “We had our treasurer sitting in the kitchen. That was his office,” Zatta says. “Our controller sat at a secretary’s desk outside my office. When the CEO came in, the only room he could work out of was a conference room.” Zatta said the nimble management structure was a breath of fresh air compared to his big corporate background. “It was exhilarating,” he says.
As it turned out, a lot of big decisions needed to be made quickly. Very soon after Rockwood was launched and was still heavily in debt, the September 11 terrorist attacks happened and the global economy took a turn for the worse.
“Business performance was not where the models that were used to justify the purchase had them,” Zatta says. “We basically had to manage our way out of it.”
Zatta says they used a variety of accounting tactics (all above board and approved by regulators, he assures) to reduce debt payments. He called it “financial engineering.” After that crisis was over, the company re-focused on expansion, which it did until the second crisis that began with the collapse of Bear Stearns in 2008.
“You had the financial crisis as well as the global economic crisis. That was two things working on a global scale, and no one knew how bad things were going to get. Some of the scenarios were very, very scary. Our sales deteriorated quite rapidly.”
Zatta watched revenues fall by 20 percent. Rockwood would have difficulty cutting costs, since much of its operating costs came from a heavily unionized workforce in Germany. Rockwood went to the unions with a deal: work four days a week — a 20 percent pay cut — and the hours would be restored once the economy improved.
“The unions were willing to work with us. They saw we had had good times, and we were managing things correctly in bad times, and that the good times would come again and we would all benefit. But it was difficult,” Zatta says. The unions agreed to the temporary hours reduction, and the company was able to make it through the hard times without any layoffs.
“We never really did any major restructuring where people lost their jobs,” Zatta says. “We just scaled things back. The workers’ pay was restored about a year later when business picked up again.
The sale to Albermarle is a double-edged sword for Rockwood’s management. They all expect to lose their jobs if and when the merger is finalized in the first quarter of 2015. Albermarle, headquartered in Baton Rouge, has no need of another corporate management team. In its characteristic low-key way, Rockwood will likely quietly fade from the Route 1 landscape within a few months.
Nahla Azmy, vice president of Rockwood in charge of investor relations and communications, says the low-key nature of the company has been very much by design. “We’re not very promotional of ourselves,” she says. “We’re all about shareholder value.”
The acquisition by Albermarle, Azmy says, was “the final cumulation of the total shareholder value package for the investors.”
Rockwood Holdings (ROC), 100 Overlook Center, Princeton 08540; 609-514-0300; fax, 609-514-8720. Robert J. Zatta, CEO. www.rocksp.com.