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W.R. Grace to split into two companies

Columbia-based chemicals company W.R. Grace will split into two.

Columbia-based specialty chemicals giant W.R. Grace & Co. announced Thursday that it would split into two independent companies, one focused on construction products and one focused on other materials and chemicals.

Grace officials said the split, in which both companies would be publicly traded, would simplify operating structures and enhance focus. The company expects to complete the split in one year.

"The time is right to create two strong, independent companies that will benefit from improved strategic focus, simplified operating structures and more efficient capital allocation," Fred Festa, Grace's chairman and CEO, said in a statement.

Word of the decision, which is expected to boost value for shareholders, sent Grace shares up more than 12 percent Thursday to close at $102.32 on the New York Stock Exchange.

Such a split is not uncommon for companies with two different types of business, said Karyl Leggio, a finance professor at Loyola University Maryland. The stock price might not reflect the full value of a company with two distinct businesses, she said.

"It's like if you owned a utility company or a manufacturing firm and you owned a higher-tech Internet company," Leggio said. "Their returns are very different; their risk profiles are very different. Often shareholders like a different type of company.

"By splitting, you allow shareholders to invest in the company they're most comfortable with. Each business will stay focused on its core strength. You're typically more efficient when you do this."

While the chemical business will remain based at Grace's Columbia campus, the construction products business will be headquartered in Cambridge, Mass., said Grace spokesman Rich Badmington. The company has most of its construction operations there, while the silica and catalyst businesses are mostly concentrated in the Baltimore area, he said.

No layoffs are planned as a result of the split, Badmington said. "The goal here for both companies is growth."

Formal names for the two companies will be announced before the split is complete. For now, "New Grace" will consist of Grace's production of process catalysts and specialty silicas, with estimated annual sales of $1.8 billion. "New GCP" will consist of construction products and the Darex can sealant and coating business, with estimated annual sales of $1.5 billion.

The split will be done as a tax-free spin-off to Grace shareholders for federal income tax purposes. Festa will lead "New Grace," while Greg Poling, now the president and COO of Grace, will lead "New GCP."

Grace said the "New Grace" will seek to acquire other companies and will be focused on expansion. "New GCP" might also pursue acquisitions and grow organically.

"We have a world-class team of talented people who have worked hard to transform Grace into a high-performing company," Festa said. "Those efforts allow us to take this next important step in our evolution."

The decision to break up comes one year after the 160-year-old company spent nearly 13 years in bankruptcy, dogged by asbestos claims. Asbestos fibers can cause cancer and other deadly illnesses, and Grace used them in its products before the Environmental Protection Agency banned it in 1973.

A naturally occurring asbestos in a Grace-owned vermiculite mine in Libby, Mont., spread throughout the small community, sickening residents. Grace settled with the Environmental Protection Agency and the Justice Department, contributing $250 million to cleanup efforts. The federal government charged the company and former executives criminally over the mine, alleging that they knowingly endangered residents. The case ended in acquittal.

The company set up a $4 billion asbestos trust and began paying claimants after emerging from bankruptcy.

Separately, Grace reported Thursday that its earnings in 2014 rose 7.9 percent over the year before, to $276.3 million. Annual sales grew 6 percent, to $3.2 billion. In the three-month period ending in December, earnings were $15.5 million, down by nearly half of what they were a year prior.

The company employs about 1,100 in Maryland and makes specialty chemicals and materials around the world. Its headquarters have been in Columbia since 1999. The company's products include can liners and catalysts used in refining oil and shale gas.

cwells@baltsun.com

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