ST. LOUIS—Earlier this year it left the grips of bankruptcy; now it wants to leave the floor covering industry.

Four months after emerging from Chapter 11 protection ( FCNews, March 10/17), Solutia announced it is exploring “strategic alternatives with respect to its nylon business, including a possible sale.”

Solutia did not specify how much it hopes to make from a sale and no deadline has been set.

In flooring, the company’s carpet fiber brands include Wear-Dated on the residential side and Ultron in commercial.

The revelation was made by Jeffry Quinn, Solutia’s chairman, president and CEO, who noted, “We have transformed our nylon business from a North American-focused fiber business into the world’s second-largest producer of nylon 6,6 plastics. The nylon business is on a path for further growth and improvement in financial performance, and we believe strongly in the strategic course we have set for the business.

“However,” he added, “given the strength of our high-margin specialty chemical and performance materials businesses and the current industry dynamic in the nylon segment, it is an appropriate time to explore strategic alternatives available with respect to the nylon business that would better position both the nylon business and the rest of Solutia for reaching their ultimate potential.”

With that, he said the chemical maker has retained HSBC Securities (USA) to explore the company’s options. Missy Hammond, a Solutia spokeswoman, told the Pensacola (Fla.) News Journal (where the company operates a nylon facility) the hiring of HSBC is “just the beginning of this process. It’s certainly premature to speculate on the impact of the sale. At this point, there is no timeline put in place. We’re just seeing where this might go.”

She added Quinn is working with Solutia employees and executives to put the company on a path where it “can continue to grow,” but also looking at “industry dynamics” to determine just how viable the nylon business will be in the future. “This is the time to look at strategic alternatives for Solutia.”

Splitting in two

If Solutia does move forward and sells its nylon business, the company’s annual revenues would be cut by more than half. Last year, the unit generated $1.89 billion or 51% of Solutia’s total sales. It was also the supplier’s most profitable division with adjusted earnings accounting for 28% of the company’s total.

Even this year, the business unit has shown strength as sales in the first quarter were $468 million, an increase of 10% when compared to the first quarter of 2007.

But, unlike last year, the continued escalation of raw material prices have impacted the division with a $7 million loss in adjusted earnings for the period, a decrease of $35 million year-over-year. Quinn said higher selling prices only “partially recovered” the increased energy costs.

In contrast, the company noted its three other business platforms—Saflex, CPFilms, and Technical Specialties, which generated net sales of $1.85 billion and adjusted earnings of $270 million in 2007, had $108 million in adjusted earnings in the first quarter of 2008, an increase of 23% over the same period last year.

In 2007, 28% of Solutia’s nylon sales were in Asia. That number is expected to increase following the recent $182 million deal with three Chinese manufacturers for several million metric tons of the company’s leading nylon product, Vydyne, a heat-resistant nylon 6,6 plastic used in automobiles and electronic components, and Ascend nylon 6,6 resins and polymers.

According to a story in the St. Louis Dispatch, the nylon unit employs 2,700 of Solutia’s nearly 6,000 workers.

While the announcement came as a surprise to some, there had been speculation the company would shed the business while in bankruptcy. During this period, it shifted the unit’s focus from domestic carpet-fiber sales to production of specialty resins and polymers for the fast-growing Asian market.

Not the first

If Solutia does in fact sell its nylon business, it would not be the first to exit the industry. In fact, the company itself was created in 1997 via a spin-off from Monsanto Co.

In 2003 BASF sold its nylon business to Honeywell, which entered the industry when it merged with AlliedSignal in 1999. And in 2005, Honeywell sold the nylon division, which included the Anso residential and Zeftron commercial brands, to Shaw Industries.

Also, in 2004 DuPont, spun off its newly named Invista nylon division to Koch Industries, giving it ownership of the venerable Stainmaster and Antron brands.

While this type of sale is not new, chemical industry analysts wonder where a buyer would come from this time. Daniel Ortwerth of investment brokerage and financial services firm Edward Jones told the St. Louis Dispatch Soltuia faces “a struggle to find a buyer at a price [it] would like.”

He noted, the unit’s products are relatively low-tech and not very profitable, even with more “normal” oil prices. Companies that are trying to “move up the value chain” won’t be interested.

A more likely buyer, Ortwerth offered, would be a massive chemical corporation that has the global reach, production scale and efficiencies to make money even in lean times. Another possibility is an upstart Middle Eastern company that has access to a cheap supply of oil.