The Debutantes

1998 was a bumper year for IPOs. If only the stock-market newcomers knew then what they know now.

While the economic downturn was partly to blame, a string of “probably not-so-wise” acquisitions shortly after its IPO also dogged the company, concedes Pascal Bouchiat, who in the year of the flotation moved from his job as controller at Rhône-Poulenc to become group treasurer of Rhodia, winning the promotion to CFO in 2005. Though its transition from a subsidiary to a standalone listed company was far from complete, Rhodia was keen to be part of the frothy industry M& A of the time, embarking on an ambitious shopping spree, with disastrous results.

At its lowest ebb, Rhodia was confronted with a new phenomenon spreading across Europe — shareholder activism. Much of it was aimed at its acquisitions. One that drew particular ire was ChiRex of the US, bought in 2000 for $510m in cash (and $35m of the target’s debt) in a deal that The Financial Times later described as “the most egregious of the many overpriced takeovers of the time” in the speciality-chemicals industry.

In 2004, Rhodia became the subject of a French judicial enquiry after two shareholders — Hughes de Lasteyrie, a Belgian financier, and Edouard Stern, a French banker — filed a lawsuit accusing it of false accounting and other malfeasance. While rejecting a number of the claims, the AMF, the French financial watchdog, settled the case in June last year, fining Rhodia €750,000 and ex-CEO Jean-Pierre Tirouflet €500,000 for misleading investors about the group’s debt between 2001 and 2003 as well as financial details surrounding ChiRex.

Within five years of its IPO, Rhodia was in turnaround mode. In an all-too-familiar scenario among the 1998 debutantes, this consisted of €1.5 billion of divestments over three years — including ChiRex, which was sold as part of Rhodia Pharma Solutions to Shasun Chemicals & Drugs — and a programme to cut around 20% of its €1.5 billion fixed-cost base. Those two programmes, says Bouchiat, were important in helping to get Rhodia’s “overweight structure” into a more manageable size, with the number of business units reduced from 17 to seven, while finance, IT and other support functions were also streamlined.

Equally important, of course, was Rhodia’s refinancing. With the ultimate aim of boosting its “financial flexibility,” Bouchiat helped steer the company through some 15 major transactions between 2004 and 2006, including rights issues, syndicated credit lines and securitisation programmes. “What’s changed a lot since 1998 is our financial discipline, whether it’s in terms of our capital structure or working capital management,” he says.

After several years of losses, Rhodia began reaping the rewards of the turnaround in 2006. Last year continued the upward trend — net profit doubled, to €129m, while sales increased 5.6%, to €5.1 billion (restated as €4.7 billion after further divestments) and free cash flow reached €161m. Following a reverse share split in mid-2007, the company’s shares are today trading more than 51% higher than their adjusted 2004 low, at around €14.

Bouchiat disagrees with suggestions that life would have been easier for Rhodia had it been out of the glare of public scrutiny. “I don’t see any disadvantage of being a listed company in this type of situation. It’s a good way for the management of a company to be under positive pressure and reporting on a quarterly basis about the progress of the recovery programme.”


Your email address will not be published. Required fields are marked *