A more perfect union

Thomas A. Waltermire smiles whenever somebody asks him exactly what it is that PolyOne does. The company, he explains, doesn’t make “things,” it makes “stuff.”

Most of that “stuff” involves compounds of plastic, vinyl and rubber. The plastic that goes into a car dashboard or bumper, the plastic-rubber compound that makes up the IV bag in hospitals, the vinyl compound that covers your car’s airbag, even the orange pigment on the seats of the new Cleveland Browns Stadium are among the thousands of products that PolyOne manufactures. The company takes raw materials, improves them and sends the new materials on to other manufacturers for transformation into something recognizable.

What PolyOne does might be difficult to get your hands around, but the company’s influence in the plastics industry is unquestionable. With annual sales of $3.5 billion, PolyOne employs more than 10,000 people at 80 manufacturing sites on four continents.

PolyOne was born Sept. 1, 2000, out of the merger of Cleveland-based M.A. Hanna Co. and Avon Lake-based Geon Co. It seemed like an obvious — and overdue — marriage to many who follow the plastics industry: Hanna had a diverse product line and global reach, while the smaller, but faster-growing Geon dominated the North American polyvinyl chloride (PVC) market and was a more closely managed firm.

The companies’ product lines didn’t overlap, but they were parallel players in the same industry.

Leaders of the two companies quietly started the ball rolling in 1998, but it wasn’t until late last year that the deal was finally complete. And behind the scenes, representatives from McDonald Investments toiled endlessly to ensure a deal that benefited both firms.

“We knew from a strategic perspective that it made a lot of sense to put these two businesses together,” explains Christopher M. Gorman, a senior managing director at McDonald, which handled Geon’s side of the merger. “Although the deal took some twists and turns, that was the overriding thing throughout that kept everybody focused on finding a way to get it done — it just made imminent sense.”

Geon’s history seems lifted from the storybooks of American industry. It was spun off from plastics giant BFGoodrich in 1993 as the country’s first manufacturer focused solely on producing and marketing vinyl products.

All went well for several years. Then, in the winter of 1997, then-CEO William Patient led his management team through a review of the company’s growth strategy. During those meetings, Patient decided the company’s long-term future was tied to a focus on vinyl, plastic and rubber compounds and services. That required a move away from its commodity-based resin business.

As part of that strategy, Geon acquired six companies, including its largest target, the $150 million Massachusetts-based O’Sullivan Corp. By 1999, one year before the merger with M.A. Hanna, Geon more than doubled its earnings, due in large part to its acquisitions.

But even before Geon began its fast track acquisition campaign, Patient, and then Waltermire, who was named CEO in May 1999, started talking with their counterparts at M.A. Hanna about a potential merger.

“They were very general and high level talks, just kind of feeling each other out,” recalls Waltermire, who at the time was president and COO. “Our goal was to see if the concept made sense to either of us because we thought we understood the Hanna business, but we didn’t really understand it in that much depth.”

During early discussions, it became obvious to those involved that the companies should find a way to merge. So in October 1998, Geon and M.A. Hanna’s legal teams drafted a confidentiality agreement and began to exchange information about how each company was run to see how the two could make an integration work.

“From an operational standpoint, Hanna was not running as smoothly and efficiently (as Geon),” says Saul Ludwig, a managing director at McDonald who follows the polymer industry. “Geon was running smoothly, but had a much narrower product line. It was kind of like Geon was selling vanilla and Hanna was selling chocolate, strawberry and butter pecan, and they didn’t sell any vanilla.”

Ice cream analogies aside, both entities had something to gain from a merger. But, like any large-scale move of this type, there were enormous stumbling blocks on the way to unity that threatened to derail any deal.

Shortly after talks began, M.A. Hanna CEO Doug McGregor retired. Former CEO Martin D. “Skip” Walker came out of retirement and picked up where McGregor left off.

The uncertainty at the top of the M.A. Hanna ship continued until Phillip D. Ashkettle was hired in June 1999 as president and CEO of the 116-year-old firm.

When the merger talks began, Geon, like M.A. Hanna, was a transformed company.

Founded in 1885 by Marcus Alonzo Hanna, a wealthy industrialist who served as a U.S. senator and left his namesake legacy throughout the Greater Cleveland region, M.A. Hanna evolved during the late 1980s and early 1990s from an old-line iron ore company that served the mining and shipping industries into a formulated polymers manufacturer and distributor.

Between 1986 and 1999, M.A. Hanna completed 26 acquisitions and five partnerships, resulting in $2.3 billion in annual revenue. It was a far cry from the mid-1980s, when the company’s sales bottomed out at $130 million as the steel and auto markets plummeted and demand for M.A. Hanna’s core products slipped.

“Skip transformed it from a mining business to a holding company,” says Waltermire. “Geon came out of a tradition of being a very closely integrated company with a strong central identity and common systems. Here we were, talking about joining a company that was more of a holding company and put together over (the past) 15 years.”

There was also apprehension on the M.A. Hanna side. After the talks had started, Geon was working on a spin-off of its plastic resin business unit called OxyVinyls LP, a joint venture with Occidental Chemical Corp. Although the spin-off meant big profits for Geon, many at M.A. Hanna were concerned by the move.

“They justifiably said, ‘We like a lot of aspects of Geon’s compounding related interests, they’ve still got this big (resin business), but we’re not sure we understand that,'” Waltermire recalls.

Perhaps due in part to that uncertainty, talks broke off in May 1999 after a dispute over each company’s valuation in the proposed merger. Despite the disagreement, those involved in the talks say both sides were still committed to establishing a future deal.

“As everybody knows, putting together two organizations of more or less equal size is always harder to do than adding a smaller business and folding it into the company,” Waltermire says. “We set out to transform Geon and Hanna, to create something different than either of the companies was.”

So it should have come as no surprise when, in August 1999, Hanna’s newly hired CEO Phillip D. Ashkettle called Waltermire and asked to resume talks. Both companies’ boards approved restarting discussions and the two leaders returned to the bargaining table.

But the talks were short-lived. Negotiations were terminated in November after a dispute over pricing terms. Representatives from both companies made numerous attempts to resume talks in the following months, but there was little progress.

Finally, in April, M.A. Hanna’s board of directors broke the stalemate and extended an olive branch to Geon. It was during these negotiations that Waltermire and the Geon management team agreed on a compromise that many say was the linchpin of the consolidation agreement: Waltermire accepted the title of president and COO, while Ashkettle was to become chairman and CEO of the as-of-yet-unnamed proposed company. After two years, Ashkettle would step down and Waltermire would assume the top spot.

On the surface, the move gave M.A. Hanna the upper hand in the management arena, but that later turned out to be a mute point.

“People have been asking why there hasn’t been more merger activity in the specialty chemical business,” Gorman says. “Frankly, it comes down to social issues. It’s been well documented that Tom Waltermire, in order to facilitate getting this deal done and put these businesses together, was willing to step back. As fate would have it, it helped serve as a catalyst in getting the deal done.”

Disagreements over who will head a new company are common among large-scale mergers and have been the death knell of dozens, if not hundreds, of negotiations. Many would argue that that issue alone has prevented serious discussions over any speculated deal between Cleveland-based financial institutions KeyCorp and National City Corp.

But in the case of PolyOne, it was a hurdle that was swiftly overcome. Although he had been with Geon longer than Ashkettle had been with Hanna, “it was an accommodation that I thought was worth making,” Waltermire says. “I believed in the combination so much.”

On May 7, 2000, the boards of each company voted to enter into a merger, creating the world’s largest polymer services firm in an even stock swap deal. And then, says Waltermire, the real work began.

“The merger was between two corporate entities,” he says. “The integration that’s going on right now is between a dozen or more cultures and traditions that both corporations brought to the organization. Hanna was just in the early stages of integrating its businesses. Geon had doubled its size in the years before the merger, so there were new parts of Geon that needed to be integrated.

“The big challenge we have is bringing all that together.”

It requires a unique type of leader to take two so differently structured companies and weave them into one seamless operation. Fifty-one-year-old Waltermire has those qualities, claims William Patient, former Geon chairman and CEO.

“Tom is a great leader,” Patient says. “He has the ability to get different groups of people together and motivate them toward his vision. He has a tremendous enthusiasm for what he sees a company can be. That enthusiasm spreads to all of his people.”

Waltermire’s affability is undeniably genuine. His cool demeanor and easy smile never seem forced or phony. Even when discussing challenges, like the current economic slump, Waltermire is unflappable and exceedingly driven by his ambitious goals for PolyOne. He recently set the mark of $2 earnings per share by 2003, pending an improved economy, of course.

“He knows exactly what PolyOne can become and he’s been communicating that clearly, both internally and externally — a $5 billion, multipolymer, distributor, supplier global company,” McDonald’s Gorman says. “He has also put together an exceptional team of executives. He listens to them and values their input. While Tom is very good at making decisions and moving on, he’s also very good at making decisions after listening to his team.”

Waltermire graduated from The Ohio State University with a degree in biological sciences and earned his MBA at Harvard. His first position, in 1974, was as a financial analyst for BFGoodrich. He quickly moved up the corporate ladder, from division assistant to vice president, then to president of the Elastomers and Latex Division, a specialty chemical business.

His top post at Goodrich was as vice president of investor relations and assistant to the chairman and CEO. When Geon spun off from Goodrich, Waltermire followed as Geon’s CFO, but he also was responsible for many tasks in human resources, information technology and corporate communications.

“Even at BFGoodrich, Tom showed he had what it takes to be a leader,” Patient says. “Then at Geon, we talked about where we could see the company going. He had such a strong strategic vision.”

In 1997, Patient promoted Waltermire to COO. He added the title of president in 1998. In 1999, Patient announced he was passing the CEO and chairman baton to Waltermire.

Waltermire’s most auspicious promotion came less than two weeks before PolyOne went public. Ashkettle had a falling out with the M.A. Hanna board and promptly resigned. He later filed a lawsuit against his former company. In his absence, Waltermire immediately was named PolyOne’s CEO, president and chairman, almost two years ahead of schedule.

Waltermire calls Ashkettle’s resignation “regrettable,” but admits it did not slow down the integration of the two companies.

“There are always those kinds of things you have to work through,” he says.

From Day One, PolyOne has been beaten around by the economy as well by as Wall Street, which greeted the new $3.5 billion company with little encouragement.

The stock (NYSE: POL) opened on the New York Stock Exchange at $9 a share, but dropped to as low as $4.56 shortly before the start of 2001. Though it has since rebounded to near its IPO price, the company suffered a $13 million loss after its first full quarter, which Waltermire and his team attribute to a weakening economy, particularly in the auto and construction markets, as well as to high raw material costs.

To overcome those distractions, Waltermire picked up his pace. Programs that were supposed to be phased in over 12 to 18 months were jump-started. An ambitious $25 million improvement of PolyOne’s information systems was sped up.

Four plants were shut down and the work transferred to other facilities. Initiatives to save on raw materials and other purchases were implemented faster than planned to help weather the economic downturn.

“These conditions warrant that we have to do it,” PolyOne CFO Dave Wilson said during the last quarterly conference call to analysts. “(The programs) will be brought in sooner. This is a totally unacceptable level of earnings performance. We’ve got to take the bull by the horns and wrestle it down.”

Through raw material savings, overhead reductions and business growth, Waltermire says he is still committed to more than doubling the $50 million in earnings improvements that he benchmarked when the merger was announced last year. It’s too soon to tell if investors will respond, but PolyOne’s internal progression is clear to those who follow the industry.

“PolyOne continues to make progress on the integration front and sometimes it’s almost in spite of all the challenges that face them,” Gorman says. “Sometimes it’s easier to impact change in a down market than in a good market. The reason for that is that when markets are weaker, people are more open-minded to thinking about change and how they might better serve their customer base.”

Waltermire refuses to mince words when it comes to the current economy. He says if you’re a manufacturer, you’re already mired in a recession. But, he says, the services industries seem less affected by the downturn. He expects the slowdown to be short-lived, but claims PolyOne is better positioned to handle future economic shakeups than many of its competitors.

“There’s nothing like a kick in the pants to get us moving faster,” he says. “I’d rather we weren’t in the environment we are in, but the fact is that it is serving as a motivator to get our change done faster and bring our company together. Everybody has a common external enemy.”

It hasn’t been an easy process, but no one ever said that running a $3.5 billion global company would be.

“I don’t know how I could be any more pleased with how the organization has come together,” Waltermire says. “It is remarkable how people are joining in, buying into what needs to be done, buying into the mission that we’ve got and getting excited about the potential and the possibilities in this place.”

Not too shabby, he says, for a deal that almost never got done.

How to reach: PolyOne, (216) 589-4000