Rhône-Poulenc S.A.

Rhône-Poulenc S.A.

25 Quay Paul-Doumer
92408 Courbevoie
France
(1) 768 1234

State controlled
Incorporated: 1895 as Société Chimiques des Usines du
Rhône
Employees: 12,600
Sales: FFr 48.938 billion (US$ 7.608 billion)

Rhône-Poulenc began, as did many other large industrial firms, in the smallest of establishments. Its early history has been called “a history of mergers,” and a complex series of mergers actually did characterize its early days, along with an active interest in diversity. The most critical period of its history, however, has been the last two decades, when increasing losses and nationalization have influenced the direction of this important French chemical firm.

Rhône-Poulenc is the product of not one, but two historical lines reaching back into the 19th century. The first of these paths began in Paris in 1858, when a pharmacist named Etienne Poulenc purchased a small drug store. It was not long before Poulenc’s interests extended to more than apothecary supplies. He began to produce his own specialty products, featuring a line of photographic supplies and products. This early interest in diversification, even in such a small establishment, was 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 Etab-lissement Poulenc-Frères. Over the next two decades, 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.

As the Poulenc brothers were building their chemical company, another series of important events was beginning in Lyon. In 1895 the Société Chimiques des Usines du Rhône was formed for the manufacture of dyestuffs and of raw materials for perfumes. However, there were obstacles along the way for the company. 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. The banks, 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 1920’s 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. Notwithstanding these events, 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 10 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 Théra-plix, 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% 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 Instituí Merieux. 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. They also changed the distribution of sales once again, moving chemicals to the forefront. As early as 1969 Rhône-Poulenc had become the largest company in France. This series of mergers, acquisitions, and restructurings helped to develop its corporate identity into the shape it held throughout the mid-1970’s.

Despite its size and position, however, the seeds of trouble were already sown at Rhône-Poulenc. It 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, whose damages now began to be felt. An example was 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 and French, for whom it was enormously profitable.

Some of the problems in Rhône-Poulenc’s market position were solved by the acquisitions of the late 1960’s, which shifted the company’s emphasis away from a textile market which was slipping in profitability. 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-1970’s. The strain necessitated the layoff of 20,000 workers in 1974.

The downward trend continued throughout the 1970’s, despite impressive profits from a number of licensing deals. A new managing director, Jean Gandois, failed to effect a notable change after his appointment in 1976. As a result of these combined events, Rhône-Poulenc found itself in a difficult position. A change in the French government was the catalyst which altered Rhône-Poulenc’s status as a public company. The new socialist government determined to reverse the fortunes of what it perceived as a failing French industry. The device it used to intervene was the most straightforward available, namely, nationalization. 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 chairman, Loík Le Floch-Prigent. His predecessor, Gandois, resigned after the nationalization because of irreconcilable differences with the Socialist program. Le Floch, a former civil servant, had no such ideological difficulties. There were, however, other surprising elements in the government’s choice. One was Le Floch’s young age, 39, at the time. Another was his lack of experience as an industrialist; his prior experience within the government was confined to research direction in the Industry Ministry. This 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 men. 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.

Yet 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, it gained a large number of specialty chemical and pharmaceutical product lines. This action served to give unity to a company which had suffered from a fragmented product mix in recent years, as well as suiting the government’s desire to concentrate the industry’s various activities in particular companies.

A combination of business changes and good fortune strengthened Rhône-Poulenc’s prospects for renewal in the following year. The good fortune was 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.

Le Floch’s policies were in many ways an extension of Gandois’. Enough differences existed, however, that the new management and the favorable economic conditions paid off in a revival of Rhône-Poulenc’s fortunes. A key factor in this economic revival was its expansion into foreign markets, particularly in the U.S. and Japan. In the mid-1980’s, Rhône-Poulenc began a number of diverse ventures in Japan, in such areas as agricultural chemicals, Pharmaceuticals, and rare earth materials. Many of these Japanese moves 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. Its chairmanship 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-embattled company, the purchase was made feasible at least in part by the fall of the 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 made particularly favorable by the two firm’s 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.

By late 1986 Rhône-Poulenc appeared to be financially healthy once again. While earnings were down slightly from the previous year, they were expected to rise again in 1987. One of the best indicators of the company’s revival was Fourtou’s advocating early privatization by the government. Government aid was no longer required, and returning to the private sector would allow the company to increase its equity. However, privatization may not take place until as late as 1988. The company is still considered to be in the middle of major changes. Management’s attempt to move into the U.S. market indicates significant amount of restructuring which is still in its early stages. Yet while this makes the company’s near future hard to predict, its renewed profits and quest for privatisation make Rhône-Poulenc’s longterm future, after many years of uncertainty, appear quite stable.

Principal Subsidiaries

Rhône-Poulenc Chimie de Base; CIM; SI AC; Butachimie; Maprochim; Petrosynthese; Sodes; Methanolaco; Acquitainechimie; Gazechim; Rhône-Poulenc Spécialités Chimiques; Dietetique et Santé; Distugil; Givaudan-Lavirotte; Lacto-Labo; Prolabo; Vuinax; Rhône-Poulenc Santé Specia; Theraplix; Instituí Merieux; Laboratoire Roger Bellon; A.E.C.; S.F.O.S.; IBP Rhône-Poulenc; Pharmuka; Rhône-Merieux; Rhône-Poulenc Agrochimie; Pepro-Rhodic; L.T. Piver; Buhler-Fontaine; Rhodiagri; S.O.P.E.M.; Rhône-Poulenc Fibres; Rhovyl; Cellatex. The company also lists subsidiaries in the following countries: Australia, Austria, Belgium, Cameroon, Canada, Greece, Guatemala, Indonesia, Italy, Ivory Coast, Japan, Madagascar, Mexico, Morocco, The Netherlands, Portugal, Senegal, Spain, Switzerland, and West Germany.

Further Reading

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