Linde AG (LIN)’s incoming Chief Executive Officer Wolfgang Buechele said a key lesson from his two years overseeing Finnish paper-chemical maker Kemira Oyj (KRA1V) is the need for frequent reviews to keep up with changing markets.
“The world is moving very fast,” Buechele said in an interview. “The best thing is to at least review your structures at a senior level on an annual basis just to make sure you are not missing something.”
The call from the world’s biggest industrial-gas company Linde, where Buechele will start May 1, is cutting short his tenure at Kemira. The executive, whose career spans No. 1 chemical maker BASF SE and Blackstone Group LP (BX:US), instigated a revamp of Kemira to focus on more profitable markets within water chemicals.
After inheriting a company marred by profit warnings and inefficiency, Buechele streamlined production, relocated operations and divested businesses, including a formic acid unit being sold for about $190 million. Though the major restructuring programs have been completed, the benefits of streamlining will help Kemira in 2014 and thereafter, as managers now recognize the need to continually reassess operations, according to the CEO.
“You need this constant reflection on whether you are not missing directionally something that later on causes actions that could have been avoided,” said Buechele, who declined to discuss his new job at Linde.
Buechele’s switch from a $2.5-billion company in Helsinki to a $37 billion one in Munich entails a move to industrial gases and a market leader that’s been under continuous overhaul since Linde’s $16 billion acquisition of U.K. rival BOC Group in 2006. He already had a taste of the industry when he ran Borsodchem Zrt for private-equity firm Permira. The chemical maker was Linde’s biggest customer in Hungary.
Linde CEO Wolfgang Reitzle, who is leaving after more than a decade with the company, has transformed the business from an equipment and engineering company to an industrial gas specialist, trebling its share price in the process.
The German supplier of oxygen, along with Air Liquide SA (AI) of France, Air Products & Chemicals Inc. (APD:US) and Praxair Inc. (PX:US), dominates the industrial-gas market. Yet Linde is underperforming on a return on capital expenditure basis by more than 200 basis points, said Berenberg analyst John Klein.
Linde is targeting earnings before interest and taxes of at least 5 billion euros ($6.9 billion) by 2016, excluding currency effects, and a return on capital of about 13 percent. Like Kemira, it’s targeting higher-growth markets, such as supplying medical gases to housebound patients.
The goals are seen as potentially ambitious by some Linde union representatives, given currency headwinds and the extensive restructuring that already has taken place.
One strategic move by Buechele could be to divest Linde’s logistics unit Gist, with an estimated value of 800 million euros, Berenberg’s Klein said. There’s also room to further standardize assets and processes across the engineering and gas supplying units.
“He can’t follow Reitzle when it comes to growth and very big acquisitions because it’s a fairly consolidated market,” said Klein, who recommends buying Linde shares. “Reitzle did a lot, but there’s always more to do, there’s no question about that.”
Linde is scheduled to report full-year earnings on March 17. The company may report earnings before interest and taxes of 2.3 billion euros, up from a year-earlier figure of just under 2 billion euros, according to the average estimate of 25 analysts surveyed by Bloomberg.
Buechele is leaving Kemira at a time when the Finnish paper-chemical maker is switching from restructuring and paying down debt to growth and acquisitions.
The CEO set a target of boosting Kemira’s margins to 15 percent in 2016 versus 11.3 percent in 2013. Reaching that goal will require a mix of mergers and acquisitions, and internal improvements, and an equal weighting between those two drivers is a “reasonable” assumption, the executive said.
Kemira, which has appointed Outotec Oyj executive Jari Rosendal to replace Buechele, is already in the process of buying a paper emulsions business from BASF for an undisclosed sum. Akzo Nobel NV (AKZA) is seeking a buyer for a similar operation with about 250 million euros in annual sales, people familiar with the situation said Feb. 28. Buechele said Kemira would consider Akzo’s asset if it’s available.
Kemira’s drive to enter more niche areas led it to acquire 3F Chimica SpA of Italy for 85 million euros to tap demand for polymer-based additives for industries including oil drilling.
Buechele passed up the chance to buy Ashland Inc.’s Water Technology division this year. Kemira had considered the unit when it was named Hercules Inc., prior to Ashland’s ownership. Buyout firm Clayton Dubilier & Rice LLC agreed to buy the business for about $1.8 billion.
“You should not be surprised if Kemira participates in consolidation, though perhaps not in the way industry would have perhaps expected,” Buechele said.
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