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The Lubrizol Corporation

The Lubrizol Corporation

29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
U.S.A.
Telephone: (440) 943-4200
Fax: (440) 943-5337
Web site: http://www.lubrizol.com

Public Company
Incorporated:
1928 as The Graphite Oil Products Company
Employees: 7,515
Sales: $4.04 billion (2005)
Stock Exchanges: New York
Ticker Symbol: LZ
NAIC: 325199 All Other Basic Organic Chemical Manufacturing; 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

The Lubrizol Corporation is one of the world's leading suppliers of specialty chemicals. A pioneer in the field of lubricant additives, Lubrizol is the world leader in this $7 billion industry. The firm makes a wide range of additives for lubricating oil and fuel used in various engines, as well as additives for automatic transmission oils and industrial oils. Lubrizol generates approximately 56 percent of its revenues from its lubricant additives business. After more than 75 years concentrating mainly on lubricant additives, Lubrizol transformed itself through the June 2004, $1.93 billion acquisition of Noveon International, Inc. The Noveon operations provided the core for Lubrizol's specialty chemicals segment, which produces a wide range of performance chemicals, such as ingredients for personal care, pharmaceutical, food, and beverage products; emulsions and additives for coatings and inks; and specialty plastics and materials. The company maintains facilities in 27 countries, including manufacturing plants in 20 countries and laboratories in 11 countries, and it sells its products in more than 100 nations around the world. Just a little under half of Lubrizol's revenues are derived in North America, 27 percent in Europe, 18 percent in the Asia-Pacific and Middle East regions, and 6 percent in Latin America.

EARLY HISTORY

The company was founded in 1928 by the Smith brothers (Kelvin, Kent, and Vincent), Alex Nason and his father Frank Nason, and a friend of the brothers, Thomas W. James. The three Smith brothers had all worked at Dow Chemical, a company their father, a professor of chemistry, had helped to establish.

From its beginning the growth of Lubrizol, originally known as The Graphite Oil Products Company, was tied to the expansion of the petroleum and automobile industries. By working closely with manufacturers, or, in the case of shortsighted automobile makers, by staying one step ahead, Lubrizol was able to carve out an unassailable niche for itself. The company's first product, a suspension of graphite in oil called Lubri-Graph, was formulated to prevent car springs from creaking.

After this initial success, the young men addressed a more serious problem. Early automobile engines were lubricated with mineral oil, which meant that the engines overheated frequently, and that their pistons would stick because of the heat or accumulated sludge. When this happened the driver had to pull over and wait for the engine to cool. In the early 1930s the chemists at Graphite Oil discovered that by adding chlorine to lubricants the problem of overheating was alleviated. This new product, and in 1934 later the whole company, was named Lubrizol, although no one knew what the "zol" stood for (the hyphen was dropped in 1943). Soon auto repair shops and car dealers were ordering the strangely named oil, along with specialty lubricants tailor-made for specific models of engines.

In 1935 Alex Nason traveled to Detroit to promote his small company, but General Motors Corporation (GM) scoffed at the idea of adding chemicals to oil in order to increase engine performance. At the time, GM's diesel engines became so clogged with impurities that they had to be stripped and cleaned every 500 hours. Eventually the auto manufacturer was convinced of the value of gasoline and lubricant additives, and added Lubrizol products to its list of recommended products for car care.

FOCUS ON PETROLEUM
ADDITIVES: 1942

During World War II Lubrizol supplied its products to the military. In order to keep its equipment in optimum running condition the government established scientific tests and rigorous performance standards for all lubricants. After the war, standards for lubricants used in passenger cars were also set. Because Lubrizol had patented important processes and ingredients in the manufacture of high-quality lubricants, it profited from the new regulations. In 1942 the company decided to abandon the manufacture of oils and lubricants, and to concentrate solely on petroleum additives such as oxidation inhibitors, detergents, and chemicals to reduce oil breakdown at high temperatures. These additives were then sold to the major oil refineries.

By the 1950s Lubrizol was selling more petroleum additives than any other company in the world, yet it was still a privately held corporation with less than 5,000 employees. There were many factors underlying its success. One factor was the nature of the additive industry. Lubrizol sold its additives primarily to oil companies and, interestingly enough, its only competitors were oil companies. When a company such as Exxon needed an additive it did not manufacture itself, it preferred to buy the additive from Lubrizol rather than a rival oil company. Additionally, Lubrizol's status as an independent company often appealed to nationalized oil industries for political reasons. In the 1960s Lubrizol was the sole supplier of additives to the nationalized oil industry in Peru which was, for ideological reasons, reluctant to deal with the major companies in the petroleum industry.

However, Lubrizol's position as a supplier to a handful of huge companies was not without a certain amount of risk. This became apparent in the mid-1950s when Texaco decided to make its own fuel additives. This single corporation had purchased nearly a quarter of Lubrizol's total output, so its defection was painful.

Despite its problem with Texaco the company flourished. It did not, however, expand. The company philosophy was "to grow, but not get big" in the words of one executive. The president at the time, Roger Clapp, said "Our goal is to increase earnings to shareholders in a business we understand." Consequently, Lubrizol was reluctant to diversify. Until the acquisition of Agrigenetics Corporation in 1985, company policy was to buy companies only as strong as Lubrizol, and there were not many chemical firms that fit this description. In the 1950s the company made its first acquisition, the R.O. Hull Company, which made rustproofing chemicals. This company, which rarely accounted for more than 2 percent of Lubrizol's sales, was later sold.

GOING PUBLIC: 1960

In the 1960s Lubrizol continued to watch its revenues steadily increase. In 1960 it became a public company, and by taking advantage of the stock options that the company offered many employees became rich. The company had a good relationship with its employees, in part because salaries were generous and employees were eligible for profit sharing, including those on the shop floor.

COMPANY PERSPECTIVES

A pioneer in the science of lubricant additives, The Lubrizol Corporation was transformed by the 2004 acquisition of Noveon International, Inc., a supplier of advanced chemical ingredients for consumer and industrial applications. The combined forces of these businesses resulted in a new specialty chemical company defined by complementary technologies, comprehensive market knowledge and global reach.

Lubrizol's approach to management was distinctive. Job descriptions were flexible, and employees had a high degree of autonomy in deciding what tasks they should do and in what manner. The company's success had always depended on staying at the forefront of research on additives, and technicians historically comprised a high percentage of Lubrizol's workforce. Upper management was also saturated with chemists, although in the 1970s a prominent lawyer joined their ranks. The ordinarily mild-mannered Lubrizol was extremely combative in guarding its patent rights.

Unlike many chemical companies, Lubrizol applauded the country's growing concern with pollution. Lead-free gas and catalytic converters opened up a new demand for lubricants to replace the lubricating action of leaded fuel. Any change in engine design was beneficial for Lubrizol because a new design required new additives, and the company was well-equipped to meet the latest demands before its competitors were able to.

THRIVING AMID OIL CRISES AND
RECESSION

By the early 1970s Lubrizol was recognized as an excellent investment. Although ranked by size in the lower 400 of the Fortune 500, it was one of the top 40 companies in terms of stock performance. The company seemed impermeable to the various economic problems that arose during the 1970s. For instance, although some of its additives were derived from petroleum products, and many of its products were used in passenger cars, the company prospered as a result of the oil crisis. This was because high gasoline prices encouraged automakers to design new, energy efficient cars, and these design modifications required new fuel additives, transmission fluids, and gear lubricants.

Even the recession had a beneficial effect on Lubrizol, which also made additives used in the production of oils for heavy industrial machinery. During the recession it became imperative for large industrial companies to lower repair costs, and quality lubricants and additives were a good place to start. Lubricants are one of the least likely places for a company to economize. As then President Thomas W. Mastin said, "In relation to these factors (high maintenance costs) the price of superior lubricants is minor, but the benefits are significant."

In the late 1970s Lubrizol started a cautious program of diversification. Its first new purchase (1979) was the Althus Corporation, a maker of lithium batteries. In the early 1980s Lubrizol purchased a biotechnology company that used recombinant DNA for medical uses. Both of these firms were small (200 employees) and financially sound.

DIVERSIFICATION THROUGH
GENETIC ENGINEERING PLANTS

In the early 1980s Lubrizol narrowed its interest in diversification to companies that were perfecting genetic engineering with plants. Using genetic engineering, Lubrizol hoped to develop improved seed oils that could be employed in the manufacture of the additives and specialty chemicals that remained Lubrizol's main product line. In 1985 Lubrizol purchased the Agrigenetics Corporation, one of the leaders in the small field of plant genetics. This company became the first to modify a plant using recombinant DNA when it spliced a bean gene to that of a sunflower.

The purchase of Agrigenetics appeared to be an uncharacteristic move for Lubrizol, especially because Agrigenetics was operating at a loss of nearly $40 million. Agrigenetics was by far the largest acquisition in Lubrizol's history, and one that required the company to go into debt. Industry analysts pointed out, however, that there were only 20 firms capable of developing recombinant DNA techniques for plants, and that corporations who wanted to diversify into this particular field were likely to soon find it impossible to acquire a plant genetics subsidiary. Plant genetics, while risky, provided unlimited possibilities for new technologies, and Lubrizol wanted the patents.

KEY DATES

1928:
The Smith brothers, Alex and Frank Nason, and Thomas W. James form The Graphic Oil Products Company.
Company introduces Lubrizol lubricant.
1934:
Company is renamed The Lubrizol Corporation.
1942:
Company stops making oils and lubricants to concentrate solely on petroleum additives.
1943:
Hyphen is dropped from the company name.
1960:
Lubrizol goes public.
1987:
Revenues surpass the $1 billion mark.
1998:
Lubrizol acquires Adibas, the lubricants and fuel additives business of British Petroleum Company PLC.
2000:
A new diversification push beyond lubricant additives begins.
2004:
Noveon International, Inc. is acquired in a $1.93 billion deal.

Lubrizol was also interested in moving into this new area because the additives industry was maturing. Around this time, Lubrizol proved itself to be vulnerable to economic trends. Lubrizol had always been able to turn adverse economic conditions to its advantage, but in 1985 the worldwide recession began to cut into demand. Despite the rising concern over maintenance, enough machines and vehicles were out of operation to slightly depress the additives market.

Lubrizol responded to this situation by restructuring the company. There was a shift toward fewer employees in manufacturing and more in the development of specialty chemicals. The workforce was pared down, but this was accomplished through voluntary early retirement plans rather than layoffs.

By 1987 Lubrizol's revenues had surpassed the $1 billion mark for the first time. The following year net income jumped from $81.3 million to $131.2 million. Much of the increase was attributed to an October 1988 settlement of a patent-infringement case filed by Lubrizol against Exxon Corporation, at the time the top two lubricant additives makers, with 30 percent and 25 percent market shares, respectively. The case was set to go to trial when the settlement was reached, by which Exxon agreed to pay Lubrizol $80 million and agreed to stop selling more than 300 products based on Lubrizol processes. The two companies continued to battle in and out of court throughout the 1990s, finally reaching an agreement in March 1999 that settled all intellectual property litigation between the firms, with a payment of $16.8 million from Exxon to Lubrizol.

REFOCUSING ON ADDITIVES

In June 1991 Lubrizol signed a letter of intent to purchase Amoco Chemical Co.'s petroleum additives unit, but the bid fell through after regulators raised antitrust objections. Lubrizol posted revenues in excess of $1.5 billion for the first time in 1992, but growth soon stagnated because of slackening demand for additives and increasing competition. The company consequently decided to refocus on its additives business, divesting its entire biotechnology holdings from 1993 to 1996. William Bares took over as Lubrizol chairman and CEO in April 1996, having joined the company as a process development intern in 1963 when he was a college student.

The late 1990s were a period of consolidation within the additives industry. Emerging out of a series of deals were four main players: Lubrizol; Infineum, a joint venture of Royal Dutch/Shell Group and Exxon which was formed in 1999; the Oronite Division of Chevron Chemical Co., which acquired the viscosity modifiers business of Exxon Paramins; and Ethyl Corp., which had acquired the additives businesses of both Texaco Inc. and Amoco Chemical during the 1990s. Lubrizol participated in the consolidation trend as well, making six acquisitions during 1998 for a total of $157.8 million. The largest of these were Adibas, the lubricants and fuel additives business of British Petroleum Company PLC; and Carroll Scientific, Inc., a developer and supplier of varnish and wax-based performance additives for the ink market. The latter was an example of Lubrizol's determination to broaden its product base as the growth rate for engine lubricant additives declined.

At the same time, Lubrizol embarked upon a cost reduction program, aimed at reversing the trend toward declining profits. In late 1998 the company launched a three-year plan whereby 12 percent of its workforce was cut, and the number of production units was reduced by 20 percent. Ultimately, Lubrizol lowered annual operating costs by about $48 million as a result of this initiative. In the meantime, profits were hurt first in 1998 by the aftershocks from the Asian economic meltdown and then in 1999 by rising raw materials costs.

DIVERSIFICATION BEYOND
LUBRICANT ADDITIVES AND THE
NOVEON ACQUISITION

In the early 2000s, as it continued to endure the ongoing stagnation in the lubricant additive sector, Lubrizol elected to diversify. The company completed a string of acquisitions of small specialty chemical businesses and product lines whose operations offered the potential for higher margins and greater growth. Among the acquired product lines were specialty chemicals used in defoamers, inks, paints and coatings, and personal care products. In 2000 Lubrizol acquired the metalworking additives business of Alox Corporation, then early the following year bought ROSS Chem, Inc., a maker of antifoam and defoaming agents for the coatings, inks, textile, food, and metalworking industries. Among the several acquisitions in 2002 were Brose Chemical Company and Kabo Unlimited, Inc., both makers of foam-control chemicals, and Chemron Corporation, producer of specialty surfactants used in personal care products, industrial cleaners, and a wide variety of other products.

In January 2003 James L. Hambrick was named Lubrizol president. He had joined the company out of college in 1978 and had served as vice-president of Asia-Pacific operations. The small, strategic acquisitions continued in 2003 with the purchases of a foam control product line from BASF Aktiengesellschaft and a personal care ingredients business from the Dow Chemical Company. Revenues surpassed $2 billion for the first time that year. Early in 2004 Lubrizol purchased the color additives unit of Avecia Group plc for approximately $130 million. Hambrick became CEO in April of that year.

After its string of smaller deals, Lubrizol truly catapulted itself into the specialty chemical sector through the June 2004 acquisition of Cleveland-based Noveon International, Inc. for $828.6 million in net cash and the assumption of $1.1 billion in debt. Noveon was a spinoff from the BFGoodrich Company (later Goodrich Corporation) with roots winding back to the 1870s. An investor group had acquired the performance materials business of Goodrich in 2001. The independent company, first known as PMD Group, Inc. before adopting the Noveon moniker, had been slated to go public through an initial public offering when Lubrizol stepped in with its buyout offer.

Noveon's operations fit in well with those of Lubrizol as they included additives for coatings and personal care products. Lubrizol also gained Noveon's specialty materials business. As it worked to integrate this large acquisition, Lubrizol simultaneously divested a number of the weaker Noveon businesses as well as the U.S. and U.K. Lubrizol Performance Systems operations. The Noveon businesses sold units focusing on food ingredients, industrial specialties, engine control systems, active pharmaceutical ingredients, and intermediate compounds. The divestments, completed by May 2006, represented operations that had generated annual sales of $500 million. Nonetheless, Lubrizol's revenues for 2005 surged past $4 billion, while net income amounted to $189.3 million. Nearly half of the company's revenues derived from its higher-potential specialty chemical operations, placing Lubrizol in a stronger position for future growth.

Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

Cosmetochem U.S.A., Inc.; CPI Engineering Services, Inc.; Gateway Additive Company; Lubrizol Foam Control Additives, Inc.; Noveon, Inc.; Lubrizol Gesellschaft m.b.H. (Austria); Lubrizol DRC Belgium NV/SA; Noveon Europe B.V.B.A. (Belgium); Lubrizol do Brasil Aditivos, Ltda. (Brazil); Lubrizol Canada Limited; Lanzhou Lubrizol Lanlian Additive Co. Ltd. (China); Lubrizol (Shanghai) Fluid Technology Co., Ltd. (China); Tianjin LubrizolLanlian Additive Co. Ltd. (China); Lubrizol Adibis Scandinavia A/S (Denmark); Gemoplast SA (France); Lubrizol France SAS; Freedom Chemical Diamalt Beteiligungs GmbH (Germany); Lubrizol Deutschland GmbH (Germany); Noveon Asia Pacific Limited (Hong Kong); Lubrizol India Private Limited; Lubrizol Italiana S.p.A. (Italy); Lubrizol Japan Limited; Lubrizol Luxembourg S.à.r.l.; Lubrizol de Mexico Comercial, S. de R.L. de C.V.; Lubrizol Servicios Tecnicos, S. de R.L. de C.V. (Mexico); Lubrizol Europe B.V. (Netherlands); Lubrizol Transarabian Company Ltd. (Saudi Arabia); Lubrizol Southeast Asia (Pte.) Ltd. (Singapore); Lubrizol South Africa (Pty.) Limited; Lubrizol Española, S.A. (Spain); Lubrizol Sweden AB; Lubrizol A.G. (Switzerland); Lubrizol Adibas (UK) Limited; Lubrizol Limited (U.K.); Lubrizol Performance Systems Limited (U.K.); Lubrizol de Venezuela C.A.

PRINCIPAL COMPETITORS

Infineum International Limited; Chevron Oronite Company LLC; Afton Chemical Corporation; ALTANA Inc.; ATOFINA; Avecia Group plc; BASF Aktiengesellschaft; Bayer AG; Ciba Specialty Chemicals Holding Inc.; Clariant Ltd; Cognis Deutschland GmbH & Co. KG; CP Kelco; Croda International Plc; The Dow Chemical Company; Royal DSM N.V.; Eastman Chemical Company; FMC Corporation; Georgia Gulf Corporation; Hercules Incorporated; Huntsman Corporation; International Specialty Products Inc.; Johnson Polymer; Kaneka Corporation; Nihon Junyaku Co., Ltd.; OMNOVA Solutions Inc.; Parachem Corporation; PolymerLatex GmbH; Quest International B.V.; Reichhold, Inc.; Rhodia; Rohm and Haas Company; Sekisui Chemical Co., Ltd.; Sensient Technologies Corporation; Sumitomo Seika Chemicals Company, Limited; Symrise GmbH & Co. KG; Tego Chemie Service GmbH; Tessenderlo Chemie NV; 3V Sigma S.p.A.; UCB S.A.; Velsicol Chemical Corporation; Victaulic Company.

FURTHER READING

Bennett, David, "The Right Chemistry," Crain's Cleveland Business, May 9, 2005, p. 3.

Byrne, Harlan S., "Well-Oiled Machine," Barron's, October 17, 2005, p. 26.

Chang, Joseph, "Lubrizol Builds Specialty Chemicals Platform with Noveon Acquisition," Chemical Market Reporter, April 26, 2004, pp. 3 +.

Hall, Matthew, "Lubrizol Invests a Little in Everything," Ohio Business, November 1989, pp. 29 +.

Kindel, Stephen, "Lubrizol: There's Growth After War," Financial World, April 2, 1991, pp. 18 +.

Kovski, Alan, "Additives Business Consolidates As Firms Wrestle with Costs," Oil Daily, July 15, 1998.

Krouse, Peter, "Lubrizol to Buy Noveon of Brecksville," Cleveland Plain Dealer, April 17, 2004, p. C1.

"Lubrizol Is Down, but Ripe for a Rebound," Chemical Week, November 18, 1981, pp. 35 +.

Parker, Susie T., "Lubrizol to Buy Amoco Chemical Unit," Oil Daily, June 5, 1991, p. 8.

Reingold, Jennifer, "Stand and Deliver," Financial World, June 8, 1993, pp. 28, 30.

Reisch, Marc S., "Fluid Dynamics: How Lubrizol Got Its Groove Back from Additives to Specialty Materials," Chemical and Engineering News, February 21, 2005, pp. 1618.

, "More Than Just a Well-Oiled Machine," Chemical and Engineering News, November 13, 2000, pp. 1719.

Richardson, Douglas W., Lubrizol: The Formative Years, 19281942, Wickliffe, Ohio: Lubrizol Corporation, 2000, 275 p.

Salwen, Kevin G., "Lubrizol, Already Industry Leader, Gets Raves Even As It's Positioned to Solidify Attractions," Wall Street Journal, October 26, 1988.

Schiller, Zachary, "Lubrizol Could Force Exxon to Change Its Oil," Business Week, November 7, 1988, p. 40.

Schiller, Zachary, and Joan O'C. Hamilton, "A Biotech Gamble That Went to Seed," Business Week, September 5, 1988, pp. 8889.

Siler, Charles, "Tough and Slippery," Forbes, May 29, 1989, pp. 42 +.

Slakter, Ann, and Linda J. Wilson, "Lubrizol Branches Out," Chemical Week, May 6, 1987, pp. 38 +.

Smalheer, C. V., The Story of Lubrizol, [Cleveland?], 1972, 88 p.

Teitelman, Robert, "Seeds of Change: Can Lubrizol's L. E. Coleman Make His New Businesses Bloom Before His Old Ones Wither on the Vine?," Financial World, October 20, 1987, pp. 50 +.

Vanderwicken, Peter, "Lubrizol Ignores the Management Manuals," Fortune, February 1975, p. 132.

Villena-Denton, Vicky, "Lubrizol and Exxon Paramins Setting the Pace for Lube Additive Industry's Globalization," Oil Daily, March 18, 1991, pp. B-4 +.

Walsh, Kerri, "Lubrizol Bulks Up Its Specialty Offerings," Chemical Week, April 28, 2004, p. 36.

, "Lubrizol: Expanding into New Markets," Chemical Week, June 21, 2006, pp. 1921.

, "Lubrizol: Fueling Growth with Acquisitions," Chemical Week, October 1, 2003, pp. 17, 1920, 22.

, "Lubrizol Plans to Divest Several Underperforming Specialty Units," Chemical Week, December 22/29, 2004, p. 24.

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The Lubrizol Corporation

The Lubrizol Corporation

29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
U.S.A.
(440) 943-4200
Fax: (440) 943-5337
Web site: http://www.lubrizol.com

Public Company
Incorporated: 1928 as The Graphite Oil Products Company
Employees: 4,324
Sales: $1.62 billion (1998)
Stock Exchanges: New York
Ticker Symbol: LZ
NAIC: 324191 Petroleum Lubricating Oil & Grease Manufacturing; 325199 All Other Basic Organic Chemical Manufacturing

The Lubrizol Corporation is one of the worlds leading suppliers of performance chemicals, including specialty additives for lubricating oils used in various engines, automatic transmissions, and gear drives; as well as specialty products for industrial fluids, fuel additives, process chemicals, and coating additives. North America accounts for about 40 percent of company revenues, Europe, 32 percent, and the Asia-Pacific region, Latin America, and the Middle East, 28 percent.

Early History

The company was founded in 1928 by the Smith brothers (Kelvin, Kent, and Vincent), the Nason brothers (Frank and Alex), and their friend Thomas W. James. The three Smith brothers had all worked at Dow Chemical, a company their father, a professor of chemistry, had helped to establish.

From its beginning the growth of Lubrizol, originally known as The Graphite Oil Products Company, was tied to the expansion of the petroleum and automobile industries. By working closely with manufacturers, or, in the case of shortsighted automobile makers, by staying one step ahead, Lubrizol was able to carve out an unassailable niche for itself. The companys first product, a suspension of graphite in oil called Lubri-Graph, was formulated to prevent car springs from creaking.

After this initial success, the young men addressed a more serious problem. Early automobile engines were lubricated with mineral oil, which meant that the engines overheated frequently, and that their pistons would stick because of the heat or accumulated sludge. When this happened the driver had to pull over and wait for the engine to cool. The chemists at Graphite Oil discovered that by adding chlorine to lubricants the problem of overheating was alleviated. This new product, and later the whole company, was named Lubri-zol, although no one knew what the zol stood for (the hyphen was dropped in 1943). Soon auto repair shops and car dealers were ordering the strangely named oil, along with specialty lubricants tailor-made for specific models of engines.

In 1935 Alex Nason traveled to Detroit to promote his small company, but General Motors scoffed at the idea of adding chemicals to oil in order to increase engine performance. At the time, G.M.s diesel engines became so clogged with impurities that they had to be stripped and cleaned every 500 hours. Eventually the auto manufacturer was convinced of the value of gasoline and lubricant additives, and added Lubrizol products to its list of recommended products for car care.

Focus on Petroleum Additives: 1942

During World War II Lubrizol supplied its products to the military. In order to keep its equipment in optimum running condition the government established scientific tests and rigorous performance standards for all lubricants. After the war, standards for lubricants used in passenger cars were also set. Since Lubrizol had patented important processes and ingredients in the manufacture of high quality lubricants, it profited from the new regulations. In 1942 the company decided to abandon the manufacture of oils and lubricants, and to concentrate solely on petroleum additives such as oxidation inhibiters, detergents, and chemicals to reduce oil breakdown at high temperatures. These additives were then sold to the major oil refineries.

By the 1950s Lubrizol was selling more petroleum additives than any other company in the world, yet it was still a privately held corporation with less than 5,000 employees. There were many factors underlying its success. One factor was the nature of the additive industry. Lubrizol sold its additives primarily to oil companies and, interestingly enough, its only competitors were oil companies. When a company such as Exxon needed an additive it did not manufacture itself, it preferred to buy the additive from Lubrizol rather than a rival oil company. Additionally, Lubrizols status as an independent company often appealed to nationalized oil industries for political reasons. In the 1960s Lubrizol was the sole supplier of additives to the nationalized oil industry in Peru which was, for ideological reasons, reluctant to deal with the major companies in the petroleum industry.

But Lubrizols position as a supplier to a handful of huge companies was not without a certain amount of risk. This became apparent in the mid-1950s when Texaco decided to make its own fuel additives. This single corporation had purchased nearly a quarter of Lubrizols total output, so its defection was painful.

Despite its problem with Texaco the company flourished. It did not, however, expand. The company philosophy was to grow, but not get big in the words of one executive. The president at the time, Mr. Clapp, said Our goal is to increase earnings to shareholders in a business we understand. Consequently, Lubrizol was reluctant to diversify. Until the acquisition of Agrigenetics Corporation in 1985, company policy was to buy companies only as strong as Lubrizol, and there were not many chemical firms that fit this description. In the 1950s the company made its first acquisition, the R.O. Hull Company, which made rustproofing chemicals. This company, which rarely accounted for more than two percent of Lubrizols sales, was later sold.

Going Public: 1960

In the 1960s Lubrizol continued to watch its revenues steadily increase. In 1960 it became a public company, and by taking advantage of the stock options that the company offered many employees became rich. The company had a good relationship with its employees, in part because salaries were generous and employees were eligible for profit sharing, including those on the shop floor.

Lubrizols approach to management was distinctive. Job descriptions were flexible, and employees had a high degree of autonomy in deciding what tasks they should do and in what manner. The companys success had always depended on staying at the forefront of research on additives, and technicians historically comprised a high percentage of Lubrizols workforce. Upper management was also saturated with chemists, although in the 1970s a prominent lawyer joined their ranks. The ordinarily mild-mannered Lubrizol was extremely combative in guarding its patent rights.

Unlike many chemical companies, Lubrizol applauded the countrys growing concern with pollution. Lead-free gas and catalytic converters opened up a new demand for lubricants to replace the lubricating action of leaded fuel. Any change in engine design was beneficial for Lubrizol because a new design required new additives, and the company was well-equipped to meet the latest demands before its competitors were able to.

Thriving Amid Oil Crises and Recession: 1970s

By the early 1970s Lubrizol was recognized as an excellent investment. Although ranked by size in the lower 400 of the Fortune 500, it was one of the top 40 companies in terms of stock performance. The company seemed impermeable to the various economic problems that arose during the 1970s. For instance, although some of its additives were derived from petroleum products, and many of its products were used in passenger cars, the company prospered as a result of the oil crisis. This was because high gasoline prices encouraged automakers to design new, energy efficient cars, and these design modifications required new fuel additives, transmission fluids, and gear lubricants.

Even the recession had a beneficial effect on Lubrizol, which also made additives used in the production of oils for heavy industrial machinery. During the recession it became imperative for large industrial companies to lower repair costs, and quality lubricants and additives were a good place to start. Lubricants are one of the least likely places for a company to economize. As then president Mastin said, In relation to these factors (high maintenance costs) the price of superior lubricants is minor, but the benefits are significant.

In the late 1970s Lubrizol started a cautious program of diversification. Its first new purchase (1979) was the Althus Corporation, a maker of lithium batteries. In the early 1980s Lubrizol purchased a biotechnology company that used recombinant DNA for medical uses. Both of these firms were small (200 employees) and financially sound.

Company Perspectives:

For 70 years, weve been building a company that applies advanced research and development to the formulation of high-performance specialty chemicals for transportation and industrial systems worldwide.

Among our strengths are our abilities to solve problems for our customers, to combine components into useful products that meet the needs of transportation and industrial customers worldwide, and to supply consistent high-quality products anywhere in the world.

Diversification Through Genetic Engineering Plants: Early 1980s

In the early 1980s Lubrizol narrowed its interest in diversification to companies that were perfecting genetic engineering with plants. Using genetic engineering, Lubrizol hoped to develop improved seed oils which could be employed in the manufacture of the additives and specialty chemicals that remained Lubrizols main product line. In 1985 Lubrizol purchased the Agrigenetics Corporation, one of the leaders in the small field of plant genetics. This company became the first to modify a plant using recombinant DNA when it spliced a bean gene to that of a sunflower.

The purchase of Agrigenetics appeared to be an uncharacteristic move for Lubrizol, especially since Agrigenetics was operating at a loss of nearly $40 million. Agrigenetics was by far the largest acquisition in Lubrizols history, and one that required the company to go into debt. Industry analysts pointed out, however, that there were only 20 firms capable of developing recombinant DNA techniques for plants, and that corporations who wanted to diversify into this particular field were likely to soon find it impossible to acquire a plant genetics subsidiary. Plant genetics, while risky, provided unlimited possibilities for new technologies, and Lubrizol wanted the patents.

Lubrizol was also interested in moving into this new area because the additives industry was maturing. Around this time, Lubrizol proved itself to be vulnerable to economic trends. Lubrizol had always been able to turn adverse economic conditions to its advantage, but in 1985 the worldwide recession began to cut into demand. Despite the rising concern over maintenance, enough machines and vehicles were out of operation to slightly depress the additives market.

Lubrizol responded to this situation by restructuring the company. There was a shift towards fewer employees in manufacturing and more in the development of specialty chemicals. The workforce was pared down, but this was accomplished through voluntary early retirement plans rather than layoffs.

By 1987 Lubrizols revenues had surpassed the $1 billion mark for the first time. The following year net income jumped from $81.3 million to $131.2 million. Much of the increase was attributed to an October 1988 settlement of a patent-infringement case filed by Lubrizol against Exxon Corporation, at the time the top two lubricant additives makers, with 30 percent and 25 percent market shares, respectively. The case was set to go to trial when the settlement was reached, by which Exxon agreed to pay Lubrizol $80 million and agreed to stop selling more than 300 products based on Lubrizol processes. The two companies continued to battle in and out of court throughout the 1990s, finally reaching an agreement in March 1999 that settled all intellectual property litigation between the firms, with a payment of $16.8 million from Exxon to Lubrizol.

Refocusing on Additives: 1990s

In June 1991 Lubrizol signed a letter of intent to purchase Amoco Chemical Co.s petroleum additives unit, but the bid fell through after regulators raised antitrust objections. Lubrizol posted revenues in excess of $1.5 billion for the first time in 1992, but growth soon stagnated because of slackening demand for additives and increasing competition. The company consequently decided to refocus on its additives business, divesting its entire biotechnology holdings from 1993 to 1996.

The late 1990s were a period of consolidation within the additives industry. Emerging out of a series of deals were four main players: Lubrizol; Infineum, a joint venture of Royal Dutch/Shell Group and Exxon which was formed in 1999; the Oronite Division of Chevron Chemical Co., which acquired the viscosity modifiers business of Exxon Paramins; and Ethyl Corp., which had acquired the additives businesses of both Texaco Inc. and Amoco Chemical during the 1990s. Lubrizol participated in the consolidation trend as well, making six acquisitions during 1998 for a total of $157.8 million. The largest of these were Adibas, the lubricants and fuel additives business of British Petroleum Company PLC; and Carroll Scientific, Inc., a developer and supplier of varnish and wax-based performance additives for the ink market. The latter was an example of Lubrizols determination to broaden its product base as the growth rate for engine lubricant additives declined.

At the same time, Lubrizol embarked upon a cost reduction program, aimed at reversing the trend toward declining profits. In late 1998 the company announced a three-year plan whereby 12 percent of its workforce would be cut, and the number of production units would be reduced by 20 percent. Lubrizol hoped to lower operating costs by about $28 million as a result of this initiative. Through this restructuring effort as well as additional acquisitions, Lubrizol aimed to maintain its nearly 40 percent share of the additives market well into the new millennium.

Principal Subsidiaries

Lubrizol do Brasil Aditivos, Ltda. (Brazil); Lubrizol Canada Limited; Lubrizol de Chile Limitada; Lubrizol China, Inc. (U.S.A.); Lubrizol Coating Additives Company G.m.b.H. (Germany); Lubrizol Española, S.A. (Spain); Lubrizol Europe B.V. (Netherlands); Lubrizol France S.A. (99.995%); Lubrizol Gesellschaft m.b.H. (Austria); Lubrizol G.m.b.H. (Germany); Lubrizol International Inc. (Cayman Islands); Lubrizol International Management Corporation; Lubrizol Italiana, S.p.A. (Italy); Lubrizol Japan Limited; Lubrizol Limited (U.K.); Lubrizol Metal working Additives Company, Inc.; Lubrizol de Mexico, S. de R.L.; Lubrizol de Mexico Comercial S. de R.L. de C.V.; Lubrizol Overseas Trading Corporation; Lubrizol Scandinavia AB (Sweden); Lubrizol Servicios Tecnicos S. de R.L. (Mexico); Lubrizol South Africa (Pty.) Limited; Lubrizol Southeast Asia (Pte.) Ltd. (Singapore); Lubrizol de Venezuela C.A. (99.9%); CPI Engineering Services, Inc.; Engine Control Systems, Ltd. (Canada); Gate City Equipment Company, Inc.; Gateway Additive Company; Hyrolec Technical Services Limited (U.K.).

Further Reading

Hall, Matthew, Lubrizol Invests a Little in Everything, Ohio Business, November 1989, pp. 29 +.

Kindel, Stephen, Lubrizol: Theres Growth After War, Financial World, April 2, 1991, pp. 18 +.

Kovski, Alan, Additives Business Consolidates As Firms Wrestle with Costs, Oil Daily, July 15, 1998.

Lublin, Joann S., Lubrizol and TIAA-CREF Fund Duel over Dead-Hand Takeover Defense, Wall Street Journal, March 23, 1999, p. A4.

Ortega, Bob, Lubrizol Shareholders Call for Repeal of Poison Pill on TIAA-CREFs Motion, Wall Street Journal, April 27, 1999, p. A12.

Parker, Susie T., Lubrizol to Buy Amoco Chemical Unit, Oil Daily, June 5, 1991, p. 8.

Reingold, Jennifer, Stand and Deliver, Financial World, June 8, 1993, pp. 28, 30.

Salwen, Kevin G., Lubrizol, Already Industry Leader, Gets Raves Even As Its Positioned to Solidify Attractions, Wall Street Journal, October 26, 1988.

Schiller, Zachary, Lubrizol Could Force Exxon to Change Its Oil, Business Week, November 7, 1988, p. 40.

Schiller, Zachary, and Joan OC. Hamilton, A Biotech Gamble That Went to Seed, Business Week, September 5, 1988, pp. 8889.

Siler, Charles, Tough and Slippery, Forbes, May 29, 1989, pp. 42 +.

Teitelman, Robert, Seeds of Change: Can Lubrizols L.E. Coleman Make His New Businesses Bloom Before His Old Ones Wither on the Vine?, Financial World, October 20, 1987, pp. 50 +.

Villena-Denton, Vicky, Lubrizol and Exxon Paramins Setting the Pace for Lube Additive Industrys Globalization, Oil Daily, March 18, 1991, pp. B-4 +.

updated by David E. Salamie

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