Nalco Holding Company

Last edited by Phil Mattera on July 19, 2010 - 11:42am

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Phil Mattera

Company Snapshot:

For most of its eight-decade history, Nalco has quietly gone about its business of producing specialty chemicals for water treatment and industrial processes. It had a higher profile in the 1970s when it challenged federal efforts to phase out the use of lead in gasoline and one of its subsidiaries was charged with botching the safety testing of drugs and chemicals. It returned to relative obscurity until 2010, when the company found itself pulled into a controversy linked to the decision by BP to use unprecedented quantities of one of Nalco’s products — the dispersant Corexit – in the oil leak disaster in the Gulf of Mexico.

Ownership status:

Publicly traded

Number of employees worldwide:

11,500

Chief executive officer:

J. Erik Fyrwald

Website:

http://www.nalco.com

Tel:

630-305-1000

Net Income:

$68 million

Total revenue:

$3.7 billion

Corporate accountability

Accountability overview:

Prior to the dispute over its oil dispersant, Nalco’s biggest controversies came in the 1970s. It was one of a group of corporations that challenged the right of the Environmental Protection Agency to order a reduction in the lead content in gasoline (Nalco produced antiknock compounds used in the noxious fuel). The companies fought the case all the way to the Supreme Court, which in 1976 declined to review an appeals court ruling backing the EPA.

Three years later, the Federal Trade Commission charged Nalco and three other producers of antiknock additives with engaging in illegal, anticompetitive practices (Washington Post, June 1, 1979). In 1981 an FTC administrative law judge upheld the complaint. Two of the other companies—DuPont and Ethyl Corp.—challenged that ruling and got an appellate court to overturn it.

Also during the 1970s, Nalco’s Industrial Bio-Test Laboratories (IBT) unit found itself accused of irregularities and deficiencies in its testing activities. For example, in 1977 the Food and Drug Administration questioned IBT’s testing of the safety of an arthritis drug and the chemicals in deodorant soaps (Washington Post, March 11, 1977). The following year IBT suspended its testing work, but the scandal continued. In 1983 a study by the EPA found that federal approval of more than 200 chemicals and pesticides on the market was based at least in part on inadequate or falsified safety testing by IBT during the 1970s (Washington Post, May 13, 1983).

In 2002 Juan Pablo Ballesteros, a member of a prominent Mexican family, was convicted of insider trading in connection with transactions in Nalco stock in 1999, around the time the company was being acquired by Suez Lyonnaise des Eaux. Ballesteros’s father, a member of Nalco’s board, was said to have tipped off his son and other relatives about the deal before it was made public. The senior Ballesteros had also been indicted but was later killed in an auto accident.

Environment and product safety:

Once it became clear that the massive leak created by the April 2010 explosion and collapse of the Deepwater Horizon oil rig in the Gulf of Mexico would not be easily contained, BP began to use large quantities of Nalco’s Corexit product to try to disperse the escaping crude oil. The aim was to limit the amount of petroleum that would damage coastal habitats, but environmentalists and other observers criticized BP for resisting the use of less toxic alternatives. They also pointed out that little was known about the impact of Corexit, which is banned for oil spills in the United Kingdom, on marine life when applied in the middle of the sea, as BP was doing. “You now have a giant chemistry experiment being done in the Gulf of Mexico,” Richard Charter of Defenders of Wildlife told the Christian Science Monitor in May.

As the debate intensified, the Environmental Protection Agency told BP to consider less toxic alternatives to Corexit, but the company claimed it could not find a safe, effective and readily available substitute and thus would go on using the Nalco product. The EPA then ordered BP to cut down on its use of dispersants.

The controversy over BP’s use of Corexit was heightened by the fact that a member of Nalco’s board, Rodney Chase, was formerly an executive at BP.

In early June the EPA quietly released a full list of the ingredients in Corexit, which turned out to include a substance, 2-butoxy ethanol, that is supposed to be “handled as a carcinogen.” Later that month, the EPA released the results of its own preliminary tests on Corexit and other dispersants. The agency found that none of the products “displayed biologically significant endocrine disrupting activity” and that the alternatives to Corexit did not seem to be significantly less toxic.

This finding was hailed by Nalco, which had strongly defended the effectiveness and safety of its product since BP began using it, though it made sure to point out that, even with the increased demand, the dispersant would account for a small portion of its total revenues.

Prior to the 2010 Gulf of Mexico disaster, the last time Corexit was in the national news was in 1989, when Exxon began to use it on parts of the Alaska shoreline fouled by oil from the Exxon Valdez spill. In August of that year, federal and state authorities barred additional use of the dispersant, which was then being produced by Exxon’s chemical manufacturing subsidiary (which was later part of joint venture with Nalco for seven years). But about ten days later, officials gave Exxon permission to test the use of limited quantities of the chemical on oil-covered beaches on Smith Island, which had been severely affected by the spill. Those tests were unsuccessful (Chemical Week, September 13, 1989), but Exxon continued to push for wider use of Corexit.

For more on the dispersant controversy, see Terry Allen's piece published on CorpWatch.

In January 2007 three workers at a Nalco plant in Sugar Land, Texas were hospitalized and thousands of nearby students were kept indoors because of an accidental release of ethylenediamine. The company later paid a fine of $3,800 to the Texas Commission on Environmental Quality because of the incident.

History

Nalco began as the National Aluminate Corporation, which was formed in 1928 through the merger of the Chicago Chemical Company and Aluminum Sales Corporation, each of which had been formed earlier in the 1920s to produce and sell the water treatment chemical sodium aluminate. The combined company soon branched out to the manufacture of chemicals used in drilling oil wells. It also provided water treatment for steam locomotives, a business which provided substantial federal contracts during the Second World War.

After the war, the company began to expand its petroleum products business and also started setting up foreign subsidiaries. In 1958 it purchased Oil Products and Chemical Company, giving it a bigger role in producing chemicals for the steel and metalworking industries. The following year the company changed its name to Nalco Chemical Company to reflect the fact that its product line included a variety of specialized chemicals in addition to sodium aluminate. Among those chemicals were antiknock compounds for leaded gasoline.

In the 1960s Nalco went public and formed a series of new joint ventures in various countries with Britain’s Imperial Chemical Industries (ICI). The company went through several restructurings in the 1970s and 1980s but continued to grow. In the 1980s the company acquired firms such as Crescent Chemical, Adco Products, Day-Glo Color and Penray, thereby moving into a variety of new chemical markets. By the end of the decade Nalco was a billion-dollar company.

In the 1990s Nalco increased its international presence, in part by buying out ICI’s interest in five of their joint ventures and by entering the Chinese market. It also combined its petroleum chemicals business with those of Exxon Chemical Company in a joint venture. During the same period it sold off several of the businesses it had bought the decade before.

In the late 1990s Nalco participated in a consolidation of the water-treatment chemicals industry by purchasing several dozen local and regional firms—one of the largest of which was Diversey Water Technologies. Nalco also acquired other specialty chemical firms such as Texo Corporation, Chemical Technologies Inc. and Paper Chemicals Inc.

In 1999 Nalco itself was taken over by the giant French utility and water services company Suez Lyonnaise des Eaux for about $4.5 billion. Suez Lyonnaise merged Nalco with its competitor Calgon Corporation, which the French firm had also taken over that year. In 2001 Suez Lyonnaise created the brand Ondeo for all its water treatment operations, so that Nalco became known as Ondeo Nalco. That same year Nalco bought out Exxon’s share in their chemicals joint venture.

In 2003 Suez sold Ondeo Nalco for $4.4 billion to a consortium of three U.S. private equity firms: Apollo Management, the Blackstone Group and Goldman Sachs Capital Partners. After the buyout, the name of the business was shortened to Nalco Company. By 2004 the firm’s revenues reached $3 billion, but it was saddled with debt from the buyout and from subsequent financial maneuvers by its owners. That year the owners took a portion of the company public as Nalco Holding, but they retained a 64 percent interest. Nalco resumed trading on the New York Stock Exchange. In 2007 Apollo, Blackstone and Goldman sold off their remaining holdings.

In 2009 investment guru Warren Buffett’s Berkshire Hathaway Inc. disclosed that it had acquired an 8.7 million share stake in Nalco, or about 6.4 percent of the shares outstanding. In 2010 Morgan Stanley disclosed that it had amassed a holding of about 5.5 percent in Nalco.

Financial information

Stock ticker symbol:

NLC

Fiscal year:

2009

Fiscal year:

2009

Major lines of business/segments:

Water Services (44 percent of 2009 revenues) “focuses on customers across various industrial and institutional markets. In both segments, we provide water, air and process applications that combine environmental benefits with economic gains for our customers, typically, water and energy savings, maintenance and capital expenditure avoidance, and product quality improvements. Innovative treatment of boiler water, cooling water, influent, and wastewater, as well as practical solutions for process improvements and pollutant control, allow our customers to capture myriad benefits. Our Water segment serves the aerospace, chemical, pharmaceutical, mining and primary metals, power, food and beverage, medium and light manufacturing, marine and pulp and papermaking industries, as well as institutional customers such as hospitals, universities, commercial buildings and hotels.”

Paper Services (18 percent) provides a “comprehensive portfolio of programs used in all principal steps of the papermaking process and across all grades of paper, including graphic, board and packaging, and tissue and towel.”

Energy Services (38 percent) “provides on-site, technology-driven solutions to the global natural gas, petroleum and petrochemical industries. In addition to recovery, production and process enhancements, we also deliver a full range of water treatment offerings to refineries and petrochemical plants. The division is divided into a Downstream refinery and petrochemical processing service business, and an Upstream group composed of our Oilfield Chemicals and Adomite business. Our upstream process applications improve oil and gas recovery and production, extend production equipment life and decrease operating costs through services including scale, paraffin and corrosion control, oil and water separation, and gas hydrate management solutions. Our downstream process applications increase refinery and petrochemical plant efficiency and the useful life of customer assets, while improving refined and petrochemical product quality and yields.”

Nalco has a joint venture with Stepan Company called TIORCO “to globally market custom-engineered chemical solutions that increase production of crude oil and gas from existing fields. The company integrates enhanced oil recovery (EOR) processes by leveraging Nalco's extensive reach in global upstream energy markets, TIORCO's 30 years of experience in EOR polymer and reservoir expertise, and Stepan's global surfactant technology and manufacturing capabilities. Customers receive the first unified approach to the EOR market – identifying, evaluating and implementing solutions that optimize oil recovery.”

Nalco also has a subsidiary called Nalco Mobotec that “provides innovative solutions to the world’s global air pollution challenges and offers practical approaches for the control of nitrogen and sulfur oxides (NOx /SOx), carbon monoxide, mercury and particulates. Nalco Mobotec’s patented solutions can accommodate fuel flexibility, biomass conversions, or co-firing in boilers. Instead of requiring major capital equipment purchases, its engineered solutions approach optimizes current assets. In addition to air quality improvements, Nalco Mobotec’s technologies can increase combustion efficiency — saving on energy costs and reducing greenhouse gas releases.”

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