330 South Fourth Street
P.O. Box 2189
Richmond, Virginia 23217
Telephone: (804) 788-5000
Fax: (804) 788-5618
Incorporated: 1887 as Albemarle Paper Mfg. Co.
Sales: $1.94 billion
Stock Exchanges: New York Pacific
SICs: 2824 Organic Fibers, Noncellulosic; 2869 Industrial Organic Chemicals, Nec; 2899 Chemical Preparations, Nec
With facilities in the United States, Japan, France, England, and Belgium, Ethyl Corporation was a leading manufacturer and marketer of value-added performance chemicals for the petroleum and plastics industries in the mid-1990s. The diversified company also produced high-tech chemical intermediates for detergents, polymers, electronics, agricultural chemicals, and pharmaceuticals. Through its subsidiary, Whitby Pharmaceuticals, Inc., Ethyl was also one of the United States' primary producers of ibuprofen pain relievers. Ethyl's history has been characterized by dramatic shifts in product and business focus that succeeded thanks to astute management.
The Albemarle Paper Company was founded in 1887 by a group of businessmen in Richmond, Virginia, who were convinced that paper was a growth area for the nineteenth century. Situated by the James River, the company's mill produced both kraft and blotter paper. The company's early history was uneventful until 1918 when Floyd Gottwald grew impatient with his job as an assistant paymaster for the Richmond, Fredricksburg and Potomac Railways and went to work for Albemarle. By the 1940s Gottwald was presiding over the company's plantation-style Richmond headquarters.
Floyd Gottwald, Sr., was once described by Forbes magazine as a 'curmudgeon' with 'a passion for anonymity,' but what Gottwald lacked in congeniality he made up for in business acumen. Having cut his teeth staying ahead of the topsy-turvy market for blotter and kraft paper, Gottwald was prepared when, in the 1950s, launderers began using polyethylene bags for the clothes they dry cleaned rather than the Albemarle-supplied paper bags. Rather than exit the business, Gottwald engineered the 1962 purchase of the Ethyl Corporation, a chemical company five times Albemarle's size, in part so that Albemarle could manufacture polyethylene bags. The headline in the Wall Street Journal read 'Jonah Swallows the Whale,' echoing the consensus among the business press that Albemarle's acquisition of Ethyl, the largest producer of anti-knock compounds for fuel, was the business coup of the decade. In another version of the buyout, Albemarle was interpreted as wanting to buy chemicals for bleaching paper from Ethyl, and the larger company was said to reject any agreement. 'That made us mad, so we waited two years and bought Ethyl for ourselves,' Gottwald was quoted as saying.
The Ethyl Corporation was created by General Motors and Standard Oil following the 1917 discovery that a lead additive in gasoline would prevent car engines from knocking. The additive, called tetra ethyl, allowed the Ethyl Corporation to hold a substantial share of the gasoline additive market for years, even in the 1950s when the patent expired. The obvious potential buyers for the Ethyl Corporation were large chemical companies like Dow Chemical or Du Pont, but they were prevented from buying from Ethyl under the stringent anti-trust laws of the time. Standard Oil, although happy to sell its share of Ethyl, had never put its shares up for sale for just this reason. When Standard Oil was approached by Albemarle, it sold Ethyl for $200 million.
Wall Street was surprised that Albemarle, a paper company with 1961 earnings of $1.8 million, could raise the necessary funds. It did so with the help of four insurance companies (including Prudential), several investment houses, and the Chase Manhattan Bank, each of which put up cash in exchange for notes. Albemarle immediately used Ethyl's depreciation to reduce its 100 percent debt to 80 percent. Nonetheless, the new Ethyl Corporation had a high debt to equity ratio.
The new company was reorganized so that Albemarle Paper became a subsidiary of the company it had recently purchased. The new company derived 60 percent of its sales from tetra ethyl and the rest from paper and plastics. In 1963 Gottwald bought Union Carbide's VisQueen, a major producer of polyethylene film used for food packaging. In 1966 it developed the capacity to produce plastic bottles and became a leader in the manufacture of polyvinyl chloride (PVC). These new acquisitions meant that Ethyl carried a burden of debt that would have been almost unthinkable in the 1970s or 1980s. But as one industry analyst pointed out, 'In an economy where interest payments are tax-deductible, it makes sense to keep money in business rather than retire debt.'
Ethyl Corporation soon entered the European market, selling its lead additives in bulk. In the first four years after Albemarle had purchased Ethyl, the company's profits went up 80 percent, setting the pace for Ethyl's subsequent growth. With the exception of an occasional year off, Ethyl has historically grown between ten and 20 percent a year.
Ethyl's acquisitions did not stop at plastics. In 1966 it bought the William Bonnel Company, a producer of shaped aluminum, and in 1967 it purchased the Oxford Paper Company. The managers of the old Albemarle Paper Company had always wanted to manufacture bleached paper; re-christened as Ethyl, they now owned one of the larger makers of fine printing paper and paper for books, as well as Oxford's 195,000 acres of timberland. The old Albemarle division was sold, along with Interstate Bag and Halifax Timber.
For many stock market analysts the radical, albeit successful, diversification policies of Ethyl during this period typified the business climate of the 1960s. In the period of a few years, a paper company of moderate size became a major force in markets as diverse as fuel additives, food wrap, and PVC, and had substantial aluminum holdings. In the late 1960s, however, Ethyl confronted another trend, namely, a growing concern for the environment. This led to the eventual extinction of Ethyl's main product, lead additives for gasoline.
In the mid-1960s, a Dr. Clair Patterson was tracing lead isotopes in the Arctic and the Pacific in order to discover clues about the formation of the Earth when he learned that air-borne lead was poisoning people. Patterson showed that urban dwellers had 50 percent more lead in their blood than their counterparts in rural areas. Scientist after scientist blamed leaded gasoline. Ethyl Corporation, which derived the bulk of its earnings from the leaded additives which many scientists claimed were polluting the atmosphere, was in a precarious position.
The Ethyl Corporation's official stance was that the studies of Patterson and other like-minded scientists were incorrect. Unleaded gasoline, the company said, would require expensive changes in automobiles and refineries, resulting in severe economic repercussions. In addition, one Ethyl advertisement claimed that, 'Taking the lead out of gasoline can increase more than the price. It can increase the smog.' This claim referred to the theory that inefficient, knocking engines would release more hydrocarbons than smoothly running engines which consumed leaded gas. Congress was not convinced and, in the Clean Air Act, mandated stricter emissions controls for cars. General Motors, Ethyl's old owner, signed the death warrant for tetra ethylene by opting for a catalytic converter on new cars rather than the lead converter that Ethyl proposed. Catalytic converters run on lead-free gas.
The planned elimination of leaded gasoline seemed to doom the Ethyl Corporation to failure, but while the price of Ethyl stock shares dropped precipitously, earnings did not. Because lead-free gas was phased in gradually, Ethyl had time to withdraw from its dependence on tetra ethylene. Moreover, a sizable European market for its lead additives buoyed company profits. Most of all, management at Ethyl had the intelligence to diversify. In 1970, for instance, the year after the decline in its stock, Ethyl bought a company that manufactured instruments to measure auto emissions. In 1971, despite a decline in lead sales, the company had a record year as paper and chemical sales surged. By 1975, chemical sales were so strong that the company sold its Oxford Paper division and focussed its attention on developing detergent intermediaries, more plastic products, and dispensers for personal care products. The advent of disposable diapers was also a boon, as Ethyl made the plastic lining for Pampers products. Despite the loss of its primary product, and despite several lean years, Ethyl Corporation survived and expanded in the 1970s.
Ethyl made another idiosyncratic acquisition in 1981 when it bought First Colony Life Insurance. At the time it made this purchase, Ethyl was deriving its income primarily from specialty chemicals and fuel additives, while First Colony was making a large amount of money by breaking all the traditional rules for selling insurance. For instance, it sold special policies to individuals in high risk groups, including diabetics and people with heart problems. Another innovation on the part of First Colony was to convince salespeople from other companies to sell First Colony life insurance when their own companies did not have a comparable policy. This meant that First Colony did not have to train career agents, which was an expensive project.
Floyd Gottwald, Jr., who had taken over the company from his father, defended the purchase by pointing out that it is good for a specialty chemical company to have some products that do not require expensive research and development. First Colony flourished under its new ownership; its earnings quadrupled between 1982 and 1984, going from $10.8 million to $39.4 million. With the addition of the newly acquired insurance company, Ethyl had a record year in 1984 as its earnings rose 25 percent. The company's chemical product mix was well balanced between bromides, semiconductor chemicals, herbicides, anti-oxidants, paper chemicals, and fuel additives. Not to be defeated in its old market, Ethyl persisted in selling a manganese substitute for lead as a fuel additive and had small investments in coal and oil. These last investments are referred to in the industry as 'Ethyl's revenge.'
The Ethyl Corporation of the 1980s looked quite different from its predecessors. Lead additives counted for only ten percent of profits and were easily eclipsed by the company's plastic and aluminum divisions. In the 1980s, Ethyl became a major supplier of reusable bottle caps and one of the primary U.S. manufacturers of ibuprofen, a pain killer approved for over-the-counter sales. Insurance was, after specialty chemicals, the company's most lucrative division, followed by plastics, aluminum, and energy. In fact, the company was so pleased with First Colony that it purchased the Barclay Group, a leader in life insurance policies paid for through payroll deductions.
In spite of the proliferation of environmental regulations prohibiting the use of lead as a motor fuel additive in the industrialized world, anti-knock additives continued to be one of Ethyl's significant product lines. In keeping with its history, however, the corporation adjusted to meet new imperatives. Ethyl ended its manufacture of lead anti-knock compounds with the 1993 closure of its Canadian plant, and instead marketed additives purchased from the Associated Octel Company Limited, the world's only remaining producer of tetraethyl lead (TEL).
Ethyl attempted to cover all its fuel additive 'bases' with the creation and production of HiTEC 3000, an octane-boosting compound. Introduced in 1979 in Canada, HiTEC 3000 had captured a $30 million market there by 1990, and Ethyl hoped to create a $100 million market for the product in the United States. But there were many obstacles to the product's U.S. introduction. The National Institute of Environmental Health Sciences asserted that HiTEC 3000's use of manganese, a metal linked in some studies to nervous system disorders, could pose a health risk. Both Ford Motor Co. and Chrysler Corp. claimed that manganese deposits decreased the efficiency of catalytic converters. Ethyl has been unable to win Environmental Protection Agency approval for the product, despite the fact that HiTEC could save 30 million barrels of oil annually in the United States if used nationwide.
Ethyl's administration by members of the Gottwald family continued when Bruce C. Gottwald joined the company's executive committee as president and chief executive officer. Under a third generation of Gottwalds, the firm continued to transform itself as the business environment warranted, primarily through acquisitions and spin-offs. In 1989, the company spun-off its plastics, aluminum, and energy businesses to shareholders with the creation of Tredegar Industries, Inc. The company divested itself of First Colony Corporation through a tax-free spin-off in mid 1993, then focused on its chemicals and petroleum additives businesses. After reorganizing the Baton Rouge-based chemicals division, which produced olefins and derivatives, bromine chemicals, and specialty chemicals, Ethyl resurrected the Albemarle name and applied it to the chemicals businesses, which were distributed to shareholders early in 1994. These transactions reflected the fact that chemical stocks were trading below the replacement cost of assets.
Ethyl's success is a tribute to that venerable American institution, the family-run business. The Gottwald family owns 17 percent of the stock shares, and the directors and employees own another 15 percent. Says one insider, 'They treat the company like it is their very own, and it is.' In a 1986 feature story on executive salaries, Business Week singled out president Floyd Gottwald, Jr., as the most economical chairman of the board of an American company. With a $1.7 million salary, his personal financial future is bound up with that of his company; the chances he takes affect him, and not just shareholders. The Gottwald's personal commitment to their company has paid off handsomely for shareholders and should continue to do so. As the Gottwalds noted in their 1993 annual report, Ethyl hoped that it would be 'leaner, more flexible and quicker in anticipating market needs and customer requirements' into the future.
Principal Subsidiaries: EID Corp.; Ethyl Asia Pacific Co.; Ethyl Canada, Inc.; Ethyl China Corp.; Ethyl Coordination Center S.A.; Ethyl Foreign Sales Corp.; Ethyl France SARL; Ethyl Interamerica Corp.; Ethyl Investments, Inc.; Ethyl Japan Corp.; Ethyl Mineraloel-Additive Gmbh; Ethyl Petroleum Additives, Inc.; Ethyl Petroleum Additives Ltd.; Ethyl S.A.; IMI-Tech Corp.; Potasse et Produits Chimiques S.A.; Whitby, Inc.; Whitby Pharmaceuticals, Inc.; Whitby Research, Inc.
Ainsworth, Susan, 'Ethyl, Cyanamid Catch Chemical Spin-off Fever,' Chemical & Engineering News, September 27, 1993, pp. 7-8.
Cahan, Vicky, 'This Octane-booster Could Use Some Boosters Itself,' Business Week, November 12, 1990, pp. 98-99.
Robert, Joseph C., Ethyl: A History of the Corporation and the People Who Made It, Charlottesville: University Press of Virginia, 1983.
Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.