Millennium Chemicals Inc., a Hunt Valley chemical manufacturer that has struggled through a period of depressed prices and negative returns, announced yesterday that it will merge with a competitor, buoying the company's outlook but casting doubt on the future of its Maryland headquarters and the 185 employees there.
Lyondell Chemical Co., with headquarters in Houston, will absorb Millennium through a stock and debt transaction valued at $2.3 billion to create the nation's third-largest chemical manufacturer, the two companies announced yesterday.
The merger is expected to be completed in the third quarter. The $2.3 billion price tag, calculated using share prices from before the announcement, includes $1.3 billion in Millennium debt.
The combined company will be based in Houston and expects to quickly save $50 million "through the realization of synergies," the announcement said.
But officials also said that none of those savings will be trimmed in large pieces and that the Hunt Valley operation is not considered expendable to the combined corporation.
"When you put things together there are redundancies, there are inefficiencies," said Dan F. Smith, who will keep his positions as Lyondell's president and chief executive in the combined company.
But, he added, "the future success depends on personnel in both Maryland and Houston. It's too early for us to be more specific on that."
The merger, which still needs the approval of federal regulators and shareholders from both companies, is not expected to affect Millennium's manufacturing and research operations in Maryland, which include more than 300 employees at facilities in Glen Burnie, Dundalk and Hawkins Point.
Millennium specializes in manufacturing titanium dioxide, a white pigment used in paper, paints and other industrial applications, but also makes a broad offering of colorings, coatings, reactants and other chemicals.
Largely because of bond debt that is tied to the company's balance sheet, Millennium will continue to operate as a separate entity, Lyondell officials said.
"We expect changes here, but it's too early to tell what they will be," said Amy Drusano, a spokeswoman at Millennium Chemical's headquarters in Hunt Valley.
"We can't get too far down the road yet."
Analysts said yesterday that a union of the two companies makes sense, at least on some levels.
Lyondell and Millennium already have a relationship as co-owners of Equistar Chemical Co., a Houston manufacturer of basic industrial chemicals that the two parent companies founded in 1997.
The combined companies - which will use the Lyondell name - will be the third-largest chemical manufacturer in North America, though well behind the DuPont Co. and industry leader Dow Chemical Co.
But some analysts were curious why Lyondell, which posted losses in four of the past five years, would buy a company that reported a $184 million loss last year and a $333 million loss in 2002.
Millennium, whose titanium dioxide business is suffering from a global depression that has starved off profits, announced last year that it would sell another struggling business, a unit that produces flavors and fragrances.
"It seems like the [titanium dioxide] and the flavors businesses may not be keepers long-term," Bank of America analyst Kevin McCarthy said in the conference call with company man- agement.
Lyondell and Millennium officials said they expect a recovery of the titanium dioxide business and that the merger should complement both companies, creating a global network of 37 plants on four continents and more than 10,000 employees.
The combined 2003 revenue of the two manufacturers was more than $11 billion.
"I hope that we were able to convey both our excitement and the value this brings to our investors," said Robert E. Lee, Millennium's president and chief executive officer.
Shares of Millennium rose $2.56, or 20 percent, yesterday to close at $15.11, while Lyondell shares fell 54 cents, or 3.5 percent, to close at $15.08. Both trade on the New York Stock Exchange.