Cambrex Corporation

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Cambrex Corporation

One Meadowlands Plaza
East Rutherford, New Jersey 07073
U.S.A.
(201) 804-3000
Fax: (201) 804-9852

Public Company
Incorporated: 1981 as CasChem, Inc.
Employees: 746
Sales: $350 million (1996 est.)
Stock Exchanges: American
SICs: 2869 Industrial Organic Chemicals; 2879 Agricultural Chemicals

Cambrex Corporation is one of the most innovative manufacturers of specialty chemicals, fine chemicals, and commodity chemical intermediates in the United States. The company manufactures products for five specific area markets, including the following: health and pharmaceuticals, such as bulk active intermediates for generic drugs; specialty and fine chemicals, including high purity inorganic salts and customer-specified chemicals; agricultural intermediates and additives, used in herbicides and feed additives; performance chemicals, for use in electronics and biomedical applications; and coatings, made to enhance the performance of paints and coatings for various commercial, industrial, and retail applications.

1980s Origins

Cambrex Corporation was established through the efforts of two men, Cyril C. Baldwin, Jr. and Arthur Mendolia. These men had known each other for a long time, having become acquainted through their work in the chemical industry. Ambitious men in their own right, they decided to take advantage of what they perceived as unique opportunities in the specialty chemicals and fine chemicals markets, and they began searching for a company to purchase. In 1981, by means of a leveraged buyout, Baldwin and Mendolia purchased a castor oil company, which manufactured urethanes and castor oil derivatives, from NL Industries. They renamed the company CasChem, Inc. and opened the firm’s doors for business.

The strategy pursued by Baldwin and Mendolia involved pursuing and then carving out niche markets in the specialty chemical and fine chemical sectors where CasChem would develop proprietary technology, preferably through the creation of patents over the years. An essential element in this strategy included the acquisition of companies with the appropriate technology that CasChem could adapt and then develop for its own use. Baldwin and Mendolia assumed that making such acquisitions would reduce the time it took CasChem to develop the same technology in-house by at least ten years.

As the company began its business, CasChem was one of the largest purchasers of castor oil in the United States. The company used castor oil in the production of many of its products and, when the market was good, sold large quantities of castor oil derivatives in bulk to other companies within the United States. The purchase price of castor oil by the company was largely determined by the natural changes in weather that affect the castor bean crop. Fortunately, the price of castor oil had remained relatively stable during the early years of CasChem’s operations. With China, India, and Brazil the largest commercial producers of castor oil in the world, CasChem bought directly from organizations in these countries and, as a result, initiated the beginnings of its foreign network.

Acquisitions

The company’s second acquisition, spearheaded by Baldwin and Mendolia, was EDT Technology. This company was involved in the manufacture of electronic plating chemicals and was widely regarded by industry analysts as one of the most promising firms in the area of specialty chemicals. Purchased in 1984, EDT Technology did not perform well from the start, but Baldwin and Mendolia decided to keep the company and judge its profitability within a span of three years. The company next acquired Spencer Kellogg, a manufacturer of castor oil derivatives. Bought in 1985, Spencer Kellogg fit in nicely with the already profitable operations at CasChem. During the same year, the company purchased Cosan, a producer of biocides and catalysts for the agricultural chemicals market. One year later, Nepera, Inc. was acquired, a manufacturer of specialty products for the pharmaceutical industry.

With the acquisition of Wickhen Products in 1987, a manufacturer of cosmetic intermediaries, CasChem counted a total of six companies under its management. The strategy of building a business through a process of acquisition led to the implementation of a decentralized management and organizational structure. The company operated each of its businesses as a distinctly separate subsidiary, with its own business manager. Each of the subsidiaries was in complete control of the resources for the manufacture of its products and, consequently, was also totally responsible for its profitability. A holding company, Cambrex Corporation, was set up to coordinate the supervision of all subsidiaries and to provide direct assistance whenever one of the companies was not performing satisfactorily. The holding company also provided services, such as pension and benefits management and advice, which was not directly associated with the financial performance of any of its subsidiaries.

Operating under this decentralized management structure, the company went public in 1987 to raise capital to continue its aggressive acquisitions campaign. At the same time, management decided to sell EDT Technology, admitting that it had misjudged the size of the niche market within which the firm’s products were sold. Fortunately, the decentralized organization of the company began to produce results almost immediately. The close association between subsidiary companies and customers allowed Cambrex to meet the needs of the market with greater efficiency. Baldwin and Mendolia were convinced that this type of operating structure more than offset the additional costs incurred by employing duplicate staffs in the areas of research and development, sales, and general management.

In 1987, the Cambrex market mix included the following figures: coatings accounted for 28 percent of the company’s business, health and drugs for 15 percent, performance chemicals for 21 percent, agricultural feed additives for 20 percent, and specialty fine chemicals for approximately 16 percent. One year later, however, the bottom fell out of almost all of these highly specialized markets. Competition from the growing number of small niche companies drove prices downward, and companies such as Cambrex, which had previously thrived on their manufacturing flexibility and ability to adapt to the specialized needs of customers, began to feel pressure from environmental regulations imposed by the federal government. As a result, Baldwin and Mendolia decided to pull the company out of its aggressive acquisitions campaign and wait for a more opportune time to make new purchases.

After nearly two years, Cambrex restarted its acquisition campaign with the purchase of Heico Chemical, a manufacturer of inorganic chemicals based in Pennsylvania. Purchased from Humphrey Chemicals, Heico was supposed to propel Cambrex into the market for pharmaceutical intermediaries. Another reason for the purchase was that Heico was working closely with American Cyanamid Company to develop an intermediate for manufacturing a herbicide called Persuit. The collaboration looked like it would produce a certain success in the agricultural chemicals markets. After the purchase, however, management at Cambrex realized that the potential commercial value of the product was offset by the enormously high development expenditures. Consequently, the deal was abandoned and Cambrex was forced to write off the investment at a cost of $9.4 million. To compensate for this loss, in late 1989 Baldwin and Mendolia decided to purchase Heico’s parent company, Humphrey Chemicals, to strengthen its base in the fine and specialty chemicals market.

By the late 1980s, Baldwin and Mendolia wanted to retire, and the two men realized that they needed to hire employees that could help them make the transition from an entrepreneurial management team to a professional management team. With this in mind, in 1990 James A. Mack was hired to assume the position of president and chief executive officer. Mack had previously worked as a vice-president at Olin Corporation, one of the largest and most influential manufacturers of chemical products and defense-related items in the United States. At the same time, Peter Tracey was brought in as chief financial officer. Tracey had an extensive background in financial supervision and management at a number of different firms, including Joyce International, Inc., an office products manufacturer, and Robotic Vision Systems, Inc., a maker of automation systems for industrial use.

Under the direction of Mack and Tracey, Cambrex immediately began to clarify its focus and to refine its long-standing acquisition policy. The two most important elements in the company’s acquisition strategy included the continuing emphasis on fine chemicals and pharmaceutical intermediaries and the expansion overseas. The company’s acquisition criteria were stringent: Mack and Tracey were looking for companies that had highly profitable niche market shares, ranged in size from $10 million to $30 million, did not require any substantial capital investment, and owned patents and proprietary technology that could be used by Cambrex in its already established markets. The two new management leaders thought the best place to look for acquisitions was in the animal health and pharmaceutical industries, where large multinational drug corporations intended to cease specialty chemicals production and focus more on research and end-product manufacturing.

Company Perspectives

Cambrex will be a leading specialty chemical company whose quality, innovation, and service exceeds the expectations of our customers. We will demonstrate an appreciation for our employees, respect for the environment, and concern for the communities in which we operate while providing a superior return to our owners.

There were two companies that met the criteria established by Mack and Tracey. Salsbury Chemicals was purchased from Solvay’s Animal Health division in 1991. Salsbury specialized in the manufacture of bulk intermediates for photo chemicals and pharmaceuticals and conducted high-level research in nitration chemistry. The second company to meet management’s strict acquisitions criteria was Zeeland Chemicals, a company that focused on specialty intermediates and on hydrogenation and resolution chemistry. The acquisition of these two companies significantly enhanced Cambrex’s presence in the pharmaceutical and photo chemicals markets. Since both Salsbury and Zeeland supplied products for companies in the same market, they began to bring in customers for other companies under the Cambrex umbrella. For example, Polaroid, one of the major purchasers of ethylene maleic anhydride copolymer, a photo chemical made by Zeeland, soon began to transact business with the other companies within the Cambrex operational group.

As the market began to improve steadily for fine and specialty chemicals, Nepera, Inc., one of the Cambrex group companies that manufactured pyridine, began to increase its sales dramatically. Pyridine is used in the manufacture of many important pharmaceuticals and other intermediates such as animal vitamins, and Nepera was one of only four producers of pyridine throughout the world, and one of two manufacturers located in the United States. Nepera’s export of 3-cyano-pyridine for the production of vitamin B3 shot up 36 percent from 1990 to 1991, largely because of purchases from customers in Taiwan and Korea. In addition, the company’s feedgrade sales also increased rapidly, primarily because of the use of a pyridine-based vitamin that improves weight gain in the raising of poultry for customer consumption. By the end of 1992, more than 25 percent of total sales for the Cambrex group of companies were outside the United States, with Germany and China as the firm’s largest export customers.

The Mid-1990s and Beyond

As the company’s operations grew, and sales throughout the world increased, Cambrex continued its growth by acquisition strategy. In January 1994, Cambrex purchased Hexcel Corporation, located in Middlesbrough, England, for a little less than $10 million. Renamed Seal Sands Chemicals, the company manufactured chemical intermediates used in the production of photographic, pharmaceutical, health care, plastics, and water treatment industries. In October of the same year, Cambrex made its most significant overseas acquisition. The company bought the Nobel/Profarmaco chemical business from Akzo Nobel, a large Swedish chemical producer, for just under $130 million. Nobel/Profarmaco was one of the European leaders in the manufacture of intermediates for pharmaceuticals and fine chemicals. The acquisition brought with it the entire operating facilities of Nobel Chemicals AB in Karlskoga, Sweden and Profarmaco Nobel S.r.l. in Milan, Italy, along with an extensive network of sales firms and offices located in the United States, England, and Germany.

These acquisitions, along with the improved performance of other companies in the Cambrex group, began to push revenues upward. In 1994, sales of health care intermediates and pharmaceuticals jumped 34 percent over the previous year, while sales of specialty and fine chemicals shot up 36 percent. Sales of agricultural intermediates and additives increased an impressive 17 percent during this same period. Feed additives that were used to encourage poultry growth and reduce disease were up 25 percent from a year earlier, and sales of pyridine alone increased a hefty 12 percent.

By 1995, Cambrex had become well-known within the specialty and fine chemicals industry as a successful international company. Nearly 40 percent of all of the company’s products were manufactured outside of the United States, and approximately 45 percent of all of its products were sold outside of the country where they were originally produced. With the acquisitions of firms in England and Sweden, Cambrex also increased its presence as a major supplier of bulk actives for the generic drug market.

In the mid-1990s, Cambrex management continued to search for companies to add to its impressive and growing list of products. Although sales of feed additives were increasing year after year, management focused on expanding its health and pharmaceuticals as well as specialty and fine chemicals businesses, which accounted for approximately 65 percent of total sales for the company.

Principal Subsidiaries

CasChem, Inc.; Cosan Chemical Corporation; Heico Chemicals, Inc.; The Humphrey Chemical Company, Inc.; Nepera, Inc.; Nobel Chemicals AB; Profarmaco Nobel S.r.l.; Salsbury Chemicals, Inc.; Seal Sands Chemicals Limited; Zeeland Chemicals, Inc.; Cambrex Hong Kong Limited; Nobel Chemicals, Inc.; Nobel Chemicals GmbH; Nobel Chemicals Limited.