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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 738  
Subject: Growth Company: Dow Chemical’s First Centu Date: 4/12/2008 2:40 PM
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“Growth Company: Dow Chemical’s First Century,” by E. N. Brandt, Michigan State University Press, East Lansing, MI, 1997. This 649 page hardback tells the story of Dow Chemical Company from its founding in 1897. Herbert Dow, the founder, was born in Belleville, Ontario Canada, where his father worked as a machinist, and later moved with his employer to Cleveland, OH. He graduated from Cleveland High School and was a member of the third graduating class of the Case School of Applied Science. There he did a senior thesis on the salt brines of Northern Ohio. He soon developed a process to recover bromine from brine. His first company, Canton Chemical failed. He then turned his attention to Midland, MI, where brines contained higher levels of bromine. His financing came from associates in Cleveland.

The Dow process apparently required oxidizing bromide in the brine to bromine and then blowing with air. Bleach, calcium hypochlorite, made by chlorinating lime, was the oxidizing agent. Chlorine and caustic soda were produced almost from the beginning by electrolysis of brine. Hence, chlorine and caustic soda were early basic Dow products, but Dow was unique in several ways. It located its facilities near the salt and made its own electricity. It sold caustic soda; chlorine was sold as derivatives. Initially bleach was the main derivative, but later carbon tetrachloride, chloroform, trichloroethylene (industrial degreasing solvent), perchloroethylene (dry cleaning solvent), vinyl chloride monomer, ethylene dichloride, hexachloroethane (Naval smoke screen agent), and chlorinated herbicides/pesticides (2,4-D, Agent Orange, DDT) were added. (Epichlorohydrin, epoxy resins, polycarbonate plastics, and isocyanates also fit in this family of chlorine derivatives.)

Prior to World War I, most chemicals in the US were supplied by European, especially German, chemical companies. Dow found its bromine business blocked by bromine cartels. A US cartel was affiliated with the German cartel. The Germans attempted to put Dow out of business by cutting prices in the US. But Dow countered by buying up German product and reselling it in Germany. A similar cartel was encountered in the bleach business. But bleach ended as a business for Dow when Penn Salt of Philadelphia began to ship rail cars of liquid chlorine in 1909. The cost of cylinders was considered prohibitive. Hence, Dow decided to sell other derivatives instead. Calcium chloride, magnesium chloride, and magnesium sulfate (Epsom Salt) followed.

During World War I, supplies of many chemicals were caught in the blockade of German ports. Dow and other US companies responded by undertaking production of needed chemicals. Dow made phenol, a raw material for artillery explosives. Dow also helped with mustard gas after the Germans introduced its use as a war gas in 1917. A process was developed reacting sulfur chloride with ethylene. The army ran equipment to make mustard gas at Midland. Two soldiers were killed after being exposed while repairing a failed lead lining in a rotating drum reactor. The ethylene was made by dehydration of ethanol.

Dow also developed a process to recover magnesium metal from brine. This light metal proved especially useful in the high performance engines used in racing in the 1920s (but it proved not strong enough for the high compression engines that came later). It was also used in flares during the war.

Dow’s product line proved resilient during the Great Depression. No layoffs were necessary. Dow continued its research efforts and was able to hire first rate chemists as they graduated. Their continued research investment while others cut back gave them an advantage in the development of petrochemical processes, especially ethylene, styrene, and vinyl chloride. Hence, Dow was first in styrene monomer, needed in World War II for synthetic rubber, and first in polystyrene plastic. Polystyrene and vinyl are the two large volume commodity plastics. Dow was in on the ground floor of both. Polyethylene and polypropylene came later. Dow also made them.

The development of tetraethyl lead as a gasoline antiknock additive created a major market for bromine as ethylene dibromide, used to scavenge lead residue from the engine. Dow set up to extract bromine from seawater, initially (1933) in Kure Beach, NC, but that site proved costly to operate. Freeport, TX was selected as a second site (1940). At the time, oil companies flared natural gas to get to the oil they considered the product. Natural gas flares lit up the night between Freeport and Houston. Dow bought its first natural gas for $0.005/MMBtu in 1940. In 1968, gas in Texas was still available for $0.25/MMBtu. Now the price is $10.00/MMBtu.

Inexpensive energy, salt and access to transportation and pipelines soon made Freeport Dow’s main production location. It also became the model by which Dow grew in the future with petrochemicals and plastics. The many unions on site and their turf battles resulted in strikes. After strikes two years in a row, 1955 and 56, Dow selected an alternative site in Plaquemine, LA in 1958. Initially it made vinyl chloride and propylene glycol, and it was an all salary location.

After World War II, Dow became a national chemical company supplying the nation from several plants. It also grew with the growth of plastics and petrochemicals. Beginning in about 1960, Dow became interested in international growth. The book describes this expansion in detail region by region and country by country. The typical pattern was to begin with a distributor who sold imported Dow products. Gradually, they were replaced with Dow salesmen and with Dow plants. Global growth of the basic industries continued through about 1980. Global operations exposes investments to local politics. At least one plant was nationalized in Chile.

In 1978, as its traditional businesses began to mature, Dow identified pharmaceuticals, consumer products and agricultural chemicals as attractive areas for growth. A series of acquisitions resulted in the formation of Marion Merrell Dow, which for a time was a major profit contributor. In the 1990s, drug companies began to merge to form global giants. That forced a decision to either buy and become a drug company or sell. Dow decided to sell to Hoechst, then the world’s largest chemical company, who followed the opposite decision. Hoechst spun off their chemical operations (as Celanese and Clariant) and merged with Rhone Poulenc (whose chemical business was spun off as Rhodia) to form Aventis, now Sanofi-Aventis, a world scale drug company.

Dow’s consumer product business was based on Saran Wrap, Dow Oven Cleaner, Scrubbing Bubbles bathroom cleaner, Ziploc bags, and related products. Texize products was acquired in 1985. The business became Dow Brands. (It was later sold to SC Johnson.)

Dow merged its agricultural chemicals business with that of Eli Lilly to form Dow Elanco in 1989. It remains a major business unit of Dow.

Having acquired Union Carbide, Dow is now the largest US chemical company and arguably the best managed chemical company. As such it can be regarded as a model of most US chemical companies. Most went through the same stages of growth from entrepreneurial founder, to family leadership, to professional management, and from regional, to national, to global businesses. Most relied on technology and low energy costs as drivers of profitability. One can easily understand Dow’s interest in an LNG terminal at Freeport, to allow importing liquified natural gas at best available prices from the world market. One can also understand their interest in selling commodity chemicals businesses to OPEC interests. But a key question is how do you grow a giant company? Will ag chemicals alone be enough? (Monsanto and Dupont appear to be the ag leaders with gene modified seed businesses that reduce the need for traditional pesticides.) And do they have promising new ventures coming along to drive that growth? Rumors of possible sale of the company or taking it private seem justified.

Students of the chemical business will find this a fascinating read. Bibliography. Indexed.
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