Grace's chemical unit seen as takeover target


BOCA RATON, Fla. -- W. R. Grace & Co.'s decision to spin off its health care business in October could spell the end of the company because its chemical business is a certain takeover target, Grace shareholders and analysts said.

The chemical business, also to be called W. R. Grace & Co., will attract suitors because of its low debt, high cash flow and strong operations, five shareholders and analysts said.

Grace's Davidson Chemical division employs 550 workers at its Curtis Bay plant. It is building another $38.5 million chemical plant nearby.

"It's long been considered one of the best specialty chemical companies, and now it's a pure play that's very attractive," said Fred Siemer, an F. H. Siemer & Co. analyst.

Dow Chemical Co., a huge chemicals and plastics maker, and Hanson PLC, a London-based chemical, building materials and consumer products company, could be interested in Grace, Mr. Siemer said.

Midland, Mich.-based Dow declined to comment. Hanson also declined to comment.

Boca Raton, Fla.-based Grace's chemical business accounted for 63 percent of its $5.1 billion in revenue last year, while the health care unit accounted for 37 percent. The company's board voted Wednesday to spin off Grace's National Medical Care Inc. unit to shareholders.

Albert Costello, who succeeded the late J. Peter Grace as company chairman last month, said at the company's annual meeting that he doesn't want W. R. Grace to be acquired.

The new chairman "said he didn't come over here to preside over the liquidation of the company, and that still holds true," said Grace spokeswoman Mary Lou Kromer.

Grace's chemical business is the world's biggest, with work in fields of packaging, catalysts, construction products, water-treatment products and sealants. Its jewel is Grace Packaging, which makes food-packaging films, bags and laminates under the Cryovac brand name.

Its pre-tax operating income rose 19 percent last year to $338 million, while its revenue increased 11 percent to $3.2 billion.

Grace shares would sell for between $35 and $40 a share after the spinoff in October, giving the chemical business $3.2 billion to $3.8 billion in market capital, analysts said.

Jeffrey Cianci, a Bear Stearns & Co. analyst, said any takeover bid for Grace would likely be a hostile one.

"Costello went through that at American Cyanamid," Mr. Cianci said. "Do you think he'd want to go through that again?" Grace shares closed down 62.5 cents at $61.875 in trading yesterday.

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