Buying Calgon Carbon: environmental solutions as a third pillar (2017)

The price of half a step

Our own technology alone will not carry us, so a little M&A is needed — a half step into a new technical field while keeping hold of the core. The price of that half step, as President Ito Masaaki described it in 2015, came to $1.1B (¥123bn) and thirteen points of equity ratio. For a man who had approached DuPont from 2002 and only closed that deal in 2014, the Calgon Carbon decision looks remarkably fast: in January 2017 he absorbed Kuraray Chemical and stood up a carbon-materials division, and by September of the same year he was buying the world’s largest player. That a batter who preaches swinging only at good pitches reached for a high one at an EV/EBITDA multiple of 22 suggests impatience with a structure in which vinyl acetate earned 80% of group operating profit.

The miscalculation came not from the business bought but from the business already owned. What caught fire in May 2018 was not the newly acquired activated-carbon plant but the EVAL plant in the United States the company had operated for years. Litigation-related losses reached $691.1M (¥74bn) over two fiscal years — a sum on the scale of the acquisition itself, flowing out for reasons that had nothing to do with it. That this arrived immediately after borrowing had consumed the company’s financial slack is the most painful part of the decision. Activated carbon did take root in North America as an environmental-solutions business, and it did stand up as a pillar. Even so, what stayed with Kuraray longer was the experience of meeting the unforeseen with no room to absorb it.