Röhm and Haas

views updated

Röhm and Haas

Independence Mall West
Philadelphia, Pennsylvania 19105
(215) 5923000

Public Company
April 23, 1917
Employees: 11,840
Sales: $2.067 billion
Market value: $3.009 billion
Stock Index: New York

Röhm and Haas is a specialty chemical company that is best known for the invention of Plexiglas. Polymers and acrylics are its staple products, but the company looks to the areas of electronic chemicals, biotechnology, water treatment, engineering plastics and adhesives for long-term growth. In the 1970s Röhm and Haas engaged in the same ill-considered diversification that many chemical companies are still attempting to recover from. What sets Röhm and Haas apart from many other chemical companies is that it managed to control its own diversification and is now growing in an orderly way.

Röhm and Haas began in 1904 when a German man named Otto Röhm noticed that the stench from the local tannery was similar to the smell of the gas water produced by the Stuttgart Gas Works, where he was dissatisfied with his job as an analytical chemist. The bad odor of the gas water came from the combination of carbon dioxide and ammonia, and Röhm wondered if these chemicals could be used to soften (bate) leather. At the time, tanners bated leather as they had for centuries: with fermented canine feces which varied in composition and hence yielded inconsistent results. The unpredictability of the bating process, coupled with the inherently disgusting nature of the bating agent, made tanners eager to break with tradition. However, not even the German chemical industry, the most advanced in the world at the time, understood the chemical nature of bating, and no satisfactory replacement for the bating agent had been discovered.

Hoping to make a name for himself in chemistry, Otto Röhm attempted to solve the problem. By 1906 he had developed a solution of gas water and salts that appeared to sufficiently soften leather. He then wrote to his friend Otto Haas, a young German who had emigrated to America a few years before. Haas agreed to join Röhm in his venture, with the understanding that Haas would bring the process back to America. The new bating agent was christened Oroh, derived from the two owners initials.

By the time Haas returned to Germany, there was bad news waiting for him. Oroh was not performing as well as expected. The two men went back to the laboratory and studied the chemical process of bating, a process that had been debated a good deal in the leather industry. Röhm eventually concluded that the two prevailing schools of thought, the first, that the bating action was caused by bacteria and the second, that the action was caused by lime reacting with bate, were both partially correct. Reaction with a bate removed the lime used to dehair the hide, and then something in the organic bate softened the hide. But what?

In 1907 Eduoard Buchner discovered enzymes, the chemical compounds from living cells that caused fermentation. Röhm saw the applicability of Buchners Nobel prizewinning work for his own research on leather chemistry. He realized that enzymes in organic bate softened leather by decomposing it, while his product merely de-limed it.

Röhm set out to isolate enzymes cheaply, and by 1907 had applied for a patent for a bate made with enzymes derived from animal pancreas. Combining his own initials with the Greek word for juice, Röhm called the solution Oropon. He then developed a technique to measure the strength of Oropon so that the solution could be sold in standard strengths.

That year Röhm and Haas legally formed the company that bears their names and established their first plant in Essenlingen, a city outside of Stuttgart. The first order of business was to manufacture large quantities of Oropon, which they made by squeezing animal pancreas in a manual press and collecting the juice. When the basement of the building became filled with rotting, ground-up pancreas, Haas is said to have thrown packages of it into the Neckar River on his nightly walks.

As more tanneries began to use Oropon, Haas and Röhm were able to hire men to squeeze the pancreas for them, and turned their attention to marketing the product in Germany, England and France. This early marketing effort established a style of salesmanship that still characterizes Röhm and Haas: technically proficient salesmen working closely with manufacturers. The company did so well that in 1909 Haas was able to return to open a branch in America. Due to the large number of tanneries in the area Haas decided to settle in Philadelphia.

By 1914 Haas was able to expand and open a plant in Chicago in order to serve midwestern tanners. His product line had increased to leather finishes, fat-liquors and a mordant for dyeing. The timing of this expansion was fortunate since, with the advent of World War I, there was a dramatic need for leather chemicals to replace the ones which had come from Germany which was still the worlds leading producer.

Röhm and Haas chemicals were needed for army boots, yet the firms German origins meant that it was under surveillance by the U.S. government. This was due to the fact that a few companies run by German-Americans were discovered to be in collaboration with the Kaisers Germany. Although there was no evidence that Haas was a collaborator, the government nevertheless ordered that 50% of the companys stock shares (held jointly by the two owners) be sold to outsiders. A tanners group, which was afraid of a disruption in their production of necessary leather chemicals, arranged to buy the shares and become a friendly partner with the firm.

While these legal maneuverings were taking place Röhm and Haas diversified into textile chemicals and then, in 1920, acquired one of its suppliers going out of business. That same year Haas purchased the North American rights to a German synthetic tanning agent and also supervised his companys expansion into synthetic insecticides. When the Depression began the managements growth policies helped the company through this difficult period. The company expanded its product line, but still concentrated on serving the leather and textile industries, which continued to produce goods albeit at a reduced rate. This, coupled with Haas policy of high liquidity and low dividend payments, meant that the company not only survived the Depression without layoffs but also managed to grow.

In 1927 Haas established a company called Resinous Products with a German scientist, Kurt Albert, who had developed a synthetic resin that was useful in making varnishes. Like Oropon this new product replaced a variable and unpredictable organic product. The new company was run separately from Röhm and Haas, and from its research into resins came a whole range of chemicals used in the coating and plywood industries.

Haas was satisfied with the success of his two business ventures but unhappy with the ownership agreement, so he arranged to purchase the shares held by the tanners association and set up a trust for Röhm who had been deprived of his interest in the American branch of the company.

Haas reaped many benefits from his continued association with Röhm. One of them was the introduction of Plexiglas, which was discovered by accident in Róhms laboratory located in Darmstadt, Germany. Röhm had started his work with acrylics in 1927. He had originally intended them for use as drying oils in varnishes, but soon realized that they could also be used as a coating for safety glass. In 1935 one of his research associates was experimenting with an acrylic polymer to see if it would bind two sheets of glass. Instead of acting as an adhesive, however, the polymer dried into a light weight, clear plastic sheet that was immediately considered a promising glass substitute.

It was another three years until Plexiglas could be manufactured inexpensively and applications for it found. Röhm himself experimented with various uses: he replaced the glass in his car and even the glass in his spectacles with Plexiglas. Among the many uses Róhms researchers explored were musical instruments; one such instrument, the acrylic violin, while striking in appearance produced a terrible sound. The Plexiglas flute was more successful. The most important applications of Plexiglas was not to see-through flutes, however, but to airplanes.

It was through such frivolities as the acrylic violin that company researchers learned how to stretch and shape Plexiglas sheets into cockpit enclosures. By 1934, when these techniques were almost perfected, the Nazi government had placed restrictions on the transmission of technical reports abroad. Haas got around these restrictions by sending one of his own chemists from the U.S. over to the companys German laboratory and having this man memorize the technology.

The U.S. Army Air Force was immediately interested in Plexiglas because it was light weight and durable, and the design of war planes was altered to take advantage of this new, shatter-proof material. The U.S. branch of Röhm and Haas, anticipating the entrance of America into the war, enlarged its capacity to manufacture Plexiglas so that the discovery made in Nazi Germany could benefit the Allies.

During the war Plexiglas accounted for two thirds of Röhm and Haas sales. In the last year before the war sales had reached $5.5 million and by the end of the war this figure had swelled to $43 million. However, Plexiglas was not the companys only contribution to the war effort. In 1934 an employee hired by Hass named Herman Bruson discovered a synthetic oil additive. It was not until the war that the significance of his discovery was revealed. Designers of military aircraft had difficulty finding a hydraulic fluid that would function at a sufficiently wide temperature range. That is, until a review of potentially useful patents turned up Brusons formula. Bruson often took credit for the Russian victory at Stalingrad since his hydraulic fluid kept Russian equipment from freezing, unlike the German hydraulic fluid which was rendered useless by the cold.

When the war ended Röhm and Haas experienced a dramatic decrease in the demand for Plexiglas and, as a result, the company struggled to expand the civilian uses of acrylic polymers. Illuminated signs and car lights were one use, along with additives for coatings and fuel. The companys major undertaking in the decade following the war was building a huge plant in Houston, Texas that was used to make the ingredients for acrylics. Along with acrylics the company also attempted to increase its holdings in markets for insecticides and fungicides. Exports, especially fungicides, were used to expand the companys European markets which Haas had previously left underdeveloped in order not to compete with his friend Röhm.

In 1959, the 50th year of Röhm and Haas American operation, Otto Haas retired, leaving the company in excellent shape. He was described as a hard-driving administrator who was by turns kind and unfair to his employees. One incident that typified Haas attitude towards his employees took place during World War II when a new guard refused to allow Haas into a company munitions plant without a pass. Haas immediately fired the man and then rehired him the next day with a raise in pay. John Haas, Ottos son, was a less colorful president. Johns style of administration stressed teamwork among the top executives, while his fathers administration had stressed obedience.

One of the first projects John Haas undertook was the ill-fated diversification into fibers and health products. At the time Röhm and Haas was the main producer of Plexiglas in the country, and had a sensible product mix of paper, leather, textile and agricultural chemicals. The expansion into fibers was motivated by the fear that one of the large chemical companies would challenge Röhm and Haas in the Plexiglas and acrylic emulsion markets that Röhm and Haas dominated. Yet the challenge from the major chemical companies never materialized, and it was the measures taken to prevent the company from being hurt that caused the damage. The new divisions, health and fibers, were profitable in only one of their 14 years of existence.

The fibers division was especially costly. The company intended to enter the crowded field through technological breakthroughs and specialized markets; this was how it had succeeded with leather chemicals and acrylics. The company had high hopes for a new synthetic fiber named Anim/8, which was supposed to give fabrics added stretch without altering their appearance. Anim/8 failed in part because Röhm and Haas misunderstood the nature of the fibers market. While an aerospace manufacturer might pay the higher dollar amount for a superior hydraulic fluid, consumers did not care that Anim/8 had slight advantages over its competitors, Spandex and Lycra, when it was 20-30% more costly. Secondly, Röhm and Haas entered the field just as women were abandoning girdles and other undergarments which were a major market for stretch fabrics. The coup de grace was the crash of the entire synthetic fabric industry in 1975 when current president Vincent Gregory said, You couldnt give the stuff away.

Earnings were depressed in the late 1960s and early 1970s as the losses incurred by the two divisions cancelled out the gains made by the specialty chemicals. The companys troubles were not only of a financial nature however. In 1975, just as the fabric industry was reaching its nadir, Röhm and Haas was deluged with bad publicity surrounding the deaths of workers who were exposed to a carcinogenic chemical called BCME. In 1962 a suspicious pattern of lung cancer deaths emerged at the companys Bridesburg, Pennsylvania plant where resins for water purification purposes were produced. The company took measures to minimize employee exposure to chemicals at the plant, but its efforts were not strong enough. In 1974 the Health Research Group, founded by Ralph Nader, accused Röhm and Haas of concealing the dangers at the plant where 54 people had died, probably from BCME induced cancer.

Vincent Gregory, who had become president in 1970, was confronted with a difficult situation. Not only did he have a public relations fiasco on his hands, but he also had to accept some of the blame for the companys financial situation since he should have divested Röhm and Haas of the fiber and health divisions immediately upon his promotion. By 1975 the company began to lose money and there was speculation that Gregory would be relieved of his duties. However, the chairman of the board, John Haas, assumed his share of the blame for having started the ill-fated diversification into areas the company was not altogether familiar with. The board decided that Gregory had had an expensive education, so to speak, and retained him to help revitalize the company.

The solution to the companys difficulties turned out to be a combination of cost-cutting (including extensive layoffs), the sale of unprofitable plants and a few judicious acquisitions. One acquisition was the Borg-Warner PVC modifier plant, a business that was inexpensive to purchase and that had not been profitable for a while. Röhm and Haas, with its experience in plastics, returned the plant to profitability by 1982, a year after it was purchased for $35 million. Röhm and Haas currently has 55% of the PVC modifier market. These modifiers make PVC more malleable.

The company decided to keep their slow-growing but profitable staples such as Plexiglas and paint and floor finishes. For faster growth it turned to herbicides, which the company started working with in the 1930s. A herbicide called Blazer, used on soybeans, has the largest sales in its specialized market. By building on its experience with resins Röhm and Haas has made coatings for electronic components a part of their product line. This is evidence of the fact that by 1984 Röhm and Haas had returned to the companys early strategy: relying on businesses and product lines it was well acquainted with, concentrating on value-added chemicals, and increasing its market share rather than its size. This old-fashioned approach resulted in record profits. In 1985 sales were down slightly, but given the difficult economic conditions that existed that year for chemical companies, the performance of Röhm and Haas was regarded by many industry analysts as satisfactory.

Röhm and Haas gives every indication of having learned its lessons about diversification and expansion. Management is now clearly focused on one goal: to be the largest and most successful specialty chemical company. The specialty chemical industry is cyclical and because of this the company will be confronted with obstacles in the years ahead. However, Röhm and Haas is especially well-equipped to deal with the industrys inherent problems. One reason is that Röhm and Haas has a substantial share of the speciality chemical market. It also has a healthy mixture of stable and fast-growing products. Most important, perhaps, is that Röhm and Haas has the capacity to rectify, and learn from, its mistakes.

Principal Subsidiaries

Comex, Inc.; Hydraulics; Plaskon Electronic Materials, Inc.; Electro-Materials Corp. of America; Furane Products Co.; Romicon, Inc.; Southern Resin and Chemical Company. Röhm and Haas also have subsidiaries in the following countries: Australia, Bermuda, Brazil, Canada, Colombia, England, France, W. Germany, Italy, India, Japan, Mexico, New Zealand, Philippines, South Africa, Spain and Sweden.

Further Reading

Building G: The Tragedy of Bridesburg by William S. Randall and Stephen D. Solomon, Boston, Little Brown, 1977.