British press turns on Innospec
TEL under the spotlight again
Three of the UK’s leading broadsheet newspapers, the centre-left Independent and Guardian and the right-wing Daily Telegraph, have all run prominent articles critical of Innospec for continuing to sell tetra ethyl lead (TEL) as a petrol additive in a few countries. The company, whose Octane Additives business is the world’s only remaining producer of TEL, although this is only a small part of its overall business, is declining to comment.
The furore began with an article by Kevin Drum entitled ‘America’s real criminal element: Lead’ in US magazine Mother Jones (http://www.motherjones.com/environment/2013/01). This cobbled together evidence since the 1940s at all levels, from nations, to states, cities and individuals and claimed a compelling link between exposure to lead in childhood and the rise in crime and violence to the 1960s and 1970s and its decline since.
“Put all this together and you have an astonishing body of evidence. Groups of children have been followed from the womb to adulthood and higher childhood blood lead levels are consistently associated with higher adult arrest rates for violent crimes. All of these studies tell the same story: for a good share of the rise and fall of violent crime over the past half century. Gasoline lead is responsible,” Drum wrote.
Although the Mother Jones article did not mention Innospec, it was soon picked up by the UK press, Greenpeace and other environmental campaigners, some who have demanded that the company be banned from selling TEL with immediate effect. They were also quick to recall that in 2010 the company was convicted and fined in both US and British for bribing Iraqi and Indonesian officials to secure TEL contracts in the years between 2000 and 2008, when it was called Associated Octel.
TEL has been phased out of fuel in most countries but remains legal in six - Afghanistan, Algeria, Iraq, Burma, Yemen and North Korea – according to the UN Environment Programme (UNEP), which has spearheaded campaigns to eliminate leaded fuel from developing nations. Originally the company, which is US-owned and does most of its manufacturing at Ellesemere Port, UK, intended to case production and sales of TEL at the end of 2012. However, it has now set a new deadline of the end of this year and recently told shareholders it would seek to “maximise the cash flow” from sales. It has always been open about continuing to sell TEL in some markets, which is perfectly legal.
“Innospec is still producing and selling TEL to a very limited number of countries for use in motor gasoline,” the company said in an earlier statement. “The timing of the exit from the business is designed around the conversion of these countries to unleaded gasoline. We have openly indicated that we expected these conversions to take place over the past few years, but it seems that in some cases the introduction of unleaded fuel in these countries has been delayed.”
However, Craig Bennett, director of policy and campaigns for Friends of the Earth, said: “If the British government has decided that for health and safety reasons this toxic chemical should not be used in the UK, why on earth does this company think it is OK to sell it abroad? The government must look urgently at what can be done to end these exports.”
Writing in The Guardian, well-known environmental journalist George Monbiot described the legality of selling TEL abroad as ‘environmental racism’. “If it is true that lead pollution, whose wider impacts have been recognised for decades, has driven the rise and fall of violence, then there lies, behind the crimes that have destroyed so many lives and filled so many prisons, a much greater crime,” he said.
TEL was developed in 1922 by Thomas Midgley – who was also behind the development of CFCs – as an anti-knock additive that helps to burn fuel more slowly and efficiently. It remains in common use in aviation fuel. However, the growing realisation of the dire effects of lead poisoning brought about its eventual replacement in motor fuel. UNEP research estimates that the removal of lead from fuel has avoided 1.2 million premature deaths per year and resulted in 58 million fewer crimes.
Separately, Innospec has acquired Strata Control Services, a US-based supplier of mud and fluid loss chemicals for oil and gas drilling applications, which turned over about $20 million last year. The purchase price includes a performance element and will be between 6x 2012 EBITDA and 5x estimated 2013 EBITDA. It should be accretive within the first year.
Strata will become part of Innospec’s Oilfield Specialties business and company owner and CEO Steve Cart will stay on. Patrick Williams, president and CEO of Innospec said: “It is important to recognise that this is only our first acquisition in growing this business, and we will continue to pursue other attractive opportunities in this market.”
In December, Innospec had lost out in a bruising battle to acquire the TPC group, a major producer of value-added products derived from niche petrochemical raw materials for applications in synthetic rubber, fuels, lubricant additives, plastics and surfactants, whose business overlapped with both the Fuel Specialties and Octane Additives businesses. Instead, TPC was acquired by of First Reserve and SK Capital Partners.
In partnership with the Blackstone Group, Innospec tried to trump an earlier offer by investment funds First Reserve and SK, but withdrew its $47.50/share offer on 3 December, just before TPC shareholders were due to vote on the First Reserve-SK offer, which they subsequently approved. Instead, Innospec announced a capital increase, paying a special dividend of $2/share on 21 December.
The battle over TPC was fought for several months, amid much speculation, division on the part of external shareholders about the true value of the company and mudslinging by First Reserve and SK about the merits of Innospec’s proposal and its ability to conclude the deal. However, the TPC board was always in favour of First Reserve and SK and this told in the end.
Afterwards, Williams commented that Innospec “is a very healthy business, generating strong cash flows”. The strategy of growing organically and via acquisitions remains unchanged and, he added, the dividend “reflects our desire to continue to be positioned for acquisitions which will add shareholder value”.