Versum CEO: Spinoff set on growth
In Q&A, Guillermo Novo charts plan to make Air Products division flourish.
By Anthony Salamone Of The Morning Call
Air Products has been active in mergers and acquisitions for years. It has divested itself of various divisions, closing a chemicals plant in Glendon, for example, and exiting the medical-equipment business.
But never in its 75-year history has Trexlertown’s Air Products spun off one of its businesses to form a separate company. That will happen next year with its Materials Technologies division, already renamed Versum Materials. Its soon-to-be chief executive, Guillermo Novo, will lead an estimated global workforce of about 3,300 at 24 plants, including more than 500 employees locally.
The 53-year-old Novo has been with Air Products since 2012 and has spent nearly three decades in specialty materials, first with Rohm and Haas and later Dow Chemical Co. in commercial, marketing and general management positions. He became executive vice president of Materials Technologies in October 2014.
A native of Puerto Rico, Novo has lived in South America and Asia besides the U.S. He and his wife reside in Philadelphia, and Novo said he also keeps an apartment in Breinigsville.
In a recent interview at his Trexlertown office, Novo would not say where Versum Technologies would locate its headquarters or if more jobs would be eliminated. Air Products cut about 2,000 jobs in the past year, but hasn’t disclosed where the cuts have been in its global workforce of approximately 19,700.
“We have a lot of people and valuable talent we want to keep focused on, and we don’t want to do radical things to disrupt that.”
Officials have said it is possible Versum (rhymes with assume) could remain on the Air Products campus, and Novo indicated as much. He also said if it moved, Versum would likely stay “in commuting distance” of the current Air Products headquarters on Hamilton Boulevard.
“We don’t want to disrupt the [research and development] teams,” he said. “We have a lot of people and valuable talent we want to keep focused on, and we don’t want to do radical things to disrupt that.”
And while the company has stated completion of the tax-free spinoff to U.S. shareholders should take effect on or before September, Novo said, “If we can do it quicker, we will. But it’s a process … we are not in control of all of it.”
What follows are excerpts from the interview.
Q. Did company leaders consider an outright sale of Materials Technologies?
A. When you look at these kind of situations, where the company is going to make a strategic move, we have to consider all options. Our fiduciary obligation is to make sure we are covering all bases, that we’re looking at the best interest of our shareholders. So we have looked at all our options, and the board and management decided a spinoff was the best option for us. This business has a low tax base. If we sell it, you would get a really big tax impact that would dilute the amount of earnings that our shareholders would lose. So it’s much better to give them the company. If we do a spin, the shareholders will get a share of each company, and then there’s no dilution of the value for our shareholders. And that’s really the whole driver for this. From a shareholder perspective, it’s going to be much better for them.
Q. Why didn’t Air Products embark on the spinoff of Materials Technologies sooner?
A. This is one of the good things for our organization. It’s been in the news: Are they going to sell it? Are they not going to sell it? It’s not a very positive environment for the people here. I think this sets us in a path of we’re in control of our destiny. We know where we’re going to go. The option of being separated into a stand-alone company has been very positive.
Q. In your last quarter, Materials Technologies’ sales decreased by $490 million. Did that performance signal a decline for the new company?
A. Not at all. If you look at the track record of performance over the last two years, we’ve been in the process of improving our business for a while now. In 2013, we started an aggressive improvement plan, and we can see the track record quarter over quarter. We’ve gone from $370 million EBITDA [earnings before interest, taxes, depreciation and amortization] to $570 million EBITDA, so about $200 million improvement in two years.
Right now we’re just dealing with market dynamics. In our electronics business, our delivery systems, our equipment business, we had told investors that the investment cycle for the semiconductor industry [shows] there was a clear sign that it was going to slow down a little bit. We thought actually it was going to be earlier in the year. It didn’t happen. We started to feel it in the fourth quarter. But more importantly, in 2014 in the fourth quarter, we had several big projects that we are not repeating now. So it’s more an issue of the delivery systems’ side.
Q. What exactly is meant by materials technologies?
A. We’re involved in different aspects. In electronics, we’re focused on materials that go into the semiconductor industry, the one that makes the chips. We have materials that are used as you make the layers of the chips. We make a lot of those materials, or we make materials used in the processing steps. We also make equipment to deliver these materials. So it’s not just the material itself, but all the know-how, all the services that are required of them to make the chips of the future. On the performance materials side, we are in the additives business. If you think about it, it’s like the things that give it the spice and taste if you are cooking. So our ingredients are very critical to making the customers’ end product work, but we are a small component of their formulation. (The Performance Materials Division of Air Products’ Materials Technologies segment provides additives to the construction, composites, adhesives, coatings and other industries. Its additives go into many consumer products: chairs, car seats, shoes and insulation, to name a few.)
Q. Where will Versum be located?
A. We have not made any specific statements. Everybody is asking a thousand questions of things that still need to happen. I think the theme that everybody needs to work with is: This is a very successful business, and we want to set it up for success.
What we’ve told everybody is: Look, there is no need to do radical changes here. If we move because there’s an opportunity, or we can get a nice site that gives us our own identity, all of that will happen when we understand the choices that we have to make. But the most important [thing] is we are probably going to stay in commuting distance, because we don’t want to disrupt [the research and development] teams. We have a lot of people and valuable talent that we want to keep focused on, and we don’t want to do radical things to disrupt that. We could be two minutes away. … We have not gotten that far into all of the analysis.
To be honest, a lot of people attribute more than what has actually been done. This thing is moving quickly, and we’re not going to do things without thinking them through. When we say we don’t know, we really don’t know.
Q. Where would you like the company to be headquartered?
A. It’s not about where I want it to be located. It’s about the new company. Everything we’re doing is about the success. I take it very seriously that the well-being of the employees and their families … is according to what we do. Any decision we make is not for any one group but for the totality, because we need to be viable. We need to be on top of our industry; we need to be able to compete and win in the space we are in. And that’s the driving force of all of the decisions.
Q. How many jobs have been cut at Materials Technologies, and do you foresee more cuts?
A. I don’t have a crystal ball. What I can say is my priority right now is to build a new company that can flourish as the premier specialty materials company. To do that, we need to build infrastructure that we don’t have. And a bigger priority for me right now is building that efficiently.
If you look at it from what we have done, and I go back two years of improvement … we manage our costs, we manage our productivity, we change our products, we move the plants. We’ve done all kinds of things to improve our overall performance…. As we move forward, our issues probably will be: Will we adjust and make improvements as we go? Any company that stops doing that won’t be around.
We are going to be hiring. Here’s a person we just hired [pointing to Renee Giello, Materials Technologies’ new global communications manager]. We just hired our controller, our tax person. We’re building a company; we’re on the opposite side of things. Now, we need to do it efficiently; we need to do it in an organized way. But that’s what I’m saying our mind-set is: We’re in a different place.”
Q. Where do you see the spinoff company’s performance years from now?
A. At $2.1 billion [in annual sales] we’ll be one of the larger chemical-materials players in the industry. We’re going to be one of the more profitable ones. So our goal has to be growth: How do we really drive a more aggressive agenda? Now that we have the freedom to really leverage our resources for our own business, how can we drive faster growth for creating value? We will have more resources than we ever had available to drive that growth.
We’re investing where we need to. Unlike the industrial gases industry, we invent things. We develop them, we get them into the market. Then we invest in manufacturing. It’s not like the reverse, where you build a plant and sell the commodity. We’re not selling a commodity.
Q. Given your Puerto Rican roots, have you gotten involved in the local Hispanic community?
A. Not necessarily. I’ve been very involved [with work]. As you can imagine, the last six years have been a lot of change for me.
I’ve really been focusing a lot on the work at hand, and frankly, there’s been a lot of change at Air Products since I got here. That’s really my biggest priority — the organization we’re building. We’ve got employees around the world. We need to do this very well for the sake of the entire organization that we’re building. email@example.com