Rohm and Haas Company

1904–1914

Rohm and Haas Company is a specialty chemical company that is best known for the invention of Plexiglas, a product it no longer makes. Polymers and acrylics are its staple products, accounting for 70 percent of sales. Generating 20 percent of revenues are what the company calls "chemical specialties," which include agricultural chemicals, biocides, and ion exchange resins. The remaining 10 percent of sales derive from chemicals used in the manufacture of electronic materials, such as integrated circuits and printed wiring boards. Long active overseas, Rohm and Haas maintains 26 manufacturing plants in 20 countries, with half of company revenues being generated outside the United States.

Origins in Leather Softening

The story of Rohm and Haas begins in 1904 when a German man named Otto Röhm noticed that the stench from the local tannery was similar to the smell of the gas water produced by the Stuttgart Gas Works, where he was dissatisfied with his job as an analytical chemist. The bad odor of the gas water came from the combination of carbon dioxide and ammonia, and Röhm wondered if these chemicals could be used to soften (bate) leather. At the time, tanners bated leather, as they had for centuries, with fermented canine feces which varied in composition and hence yielded inconsistent results. The unpredictability of the bating process, coupled with the inherently disgusting nature of the bating agent, made tanners eager to break with tradition. Nevertheless, not even the German chemical industry, the most advanced in the world at the time, understood the chemical nature of bating, and no satisfactory replacement for the bating agent had been discovered.

Hoping to make a name for himself in chemistry, Otto Röhm attempted to solve the problem. By 1906 he had developed a solution of gas water and salts that appeared to sufficiently soften leather. He then wrote to his friend Otto Haas, a young German who had immigrated to the United States a few years before. Haas agreed to join Röhm in his venture, with the understanding that Haas would bring the process back to the United States. The new bating agent was christened Oroh, derived from the two owners' initials.

By the time Haas returned to Germany, there was bad news waiting for him. Oroh was not performing as well as expected. The two men went back to the laboratory and studied the chemical process of bating, a process that had been debated a good deal in the leather industry. Röhm eventually concluded that the two prevailing schools of thought, the first, that the bating action was caused by bacteria and the second, that the action was caused by lime reacting with bate, were both partially correct. Reaction with a bate removed the lime used to dehair the hide, and then something in the organic bate softened the hide. But what?

In 1907 Eduoard Buchner discovered enzymes, the chemical compounds from living cells that caused fermentation. Röhm saw the applicability of Buchner's Nobel prize-winning work to his own research on leather chemistry. He realized that enzymes in organic bate softened leather by decomposing it, while his product merely delimed it.

Röhm set out to isolate enzymes cheaply, and by 1907 had applied for a patent for a bate made with enzymes derived from animal pancreas. Combining his own initials with the Greek word for juice, Röhm called the solution Oropon. He then developed a technique to measure the strength of Oropon so that the solution could be sold in standard strengths.

That year Röhm and Haas legally formed a German company bearing their names and established their first plant in Essenlingen, a city outside of Stuttgart. The first order of business was to manufacture large quantities of Oropon, which they made by squeezing animal pancreas in a manual press and collecting the juice.

As more tanneries began to use Oropon, Haas and Röhm were able to hire men to squeeze the pancreas for them, and turned their attention to marketing the product in Germany, England, and France. This early marketing effort established a style of salesmanship that still characterizes Rohm and Haas: technically proficient salesmen working closely with manufacturers. The company did so well that in 1909 Haas was able to return to open a branch in the United States. Due to the large number of tanneries in the area Haas decided to settle in Philadelphia.

By 1914 Haas was able to expand by opening a plant in Chicago in order to serve Midwestern tanners. His product line had increased to leather finishes, fat-liquors, and a mordant for dyeing. The timing of this expansion was fortunate since, with the advent of World War I, there was a dramatic need for leather chemicals to replace the ones that had come from Germany, still the world's leading chemical producer.

In the last year before the war, sales had reached $5.5 million and by the end of the war this figure had swelled to $43 million.

1917–1935

Formation of the U.S. Rohm and Haas in 1917

Röhm and Haas's chemicals were needed for army boots, yet the firm's German origins meant that it was under surveillance by the U.S. government. This was due to the fact that a few companies run by German-Americans were discovered to be in collaboration with the Kaiser's Germany. Although there was no evidence that Haas was a collaborator, the government nevertheless ordered that 50 percent of the company's stock (held jointly by the two owners) be sold to outsiders. A tanners' group, which was afraid of a disruption in the production of necessary leather chemicals, arranged to buy the shares--Röhm's share--and become a friendly partner with the firm. At the same time, Haas incorporated the U.S. branch as Rohm and Haas Company, a separate company independent of the German firm (which itself evolved into Röhm GmbH, currently owned by Huls Group, which is owned by Veba A.G.).

While this legal maneuvering was taking place Rohm and Haas diversified into textile chemicals and then, in 1920, acquired one of its suppliers which was going out of business. That same year Haas purchased the North American rights to a German synthetic tanning agent and also supervised his company's expansion into synthetic insecticides. When the Great Depression began Rohm and Haas management's growth policies helped the company through this difficult period. The company expanded its product line but still concentrated on serving the leather and textile industries, which continued to produce goods albeit at a reduced rate throughout the depression. This, coupled with Haas's policy of high liquidity and low dividend payments, meant that the company not only survived the depression without layoffs but also managed to grow.

In 1927 Haas established a company called Resinous Products with a German scientist, Kurt Albert, who had developed a synthetic resin that was useful in making varnishes. Like Oropon this new product replaced a variable and unpredictable organic product. The new company was run separately from Rohm and Haas, and from its research into resins came a whole range of chemicals used in the coating and plywood industries.

Haas was satisfied with the success of his two business ventures but unhappy with the ownership agreement, so he arranged to purchase the shares held by the tanners' association and set up a trust for Röhm who had been deprived of his interest in Rohm and Haas Company.

1935 Discovery of Plexiglas

Haas reaped many benefits from his continued association with Röhm. One of them was the introduction of Plexiglas, which was discovered by accident in Röhm's laboratory located in Darmstadt, Germany. Röhm had started his work with acrylics in 1927. He had originally intended them for use as drying oils in varnishes, but soon realized that they could also be used as a coating for safety glass. In 1935 one of his research associates was experimenting with an acrylic polymer to see if it would bind two sheets of glass. Instead of acting as an adhesive, however, the polymer dried into a lightweight, clear plastic sheet that was immediately considered a promising glass substitute.

It was another three years until Plexiglas could be manufactured inexpensively and applications for it found. Röhm himself experimented with various uses: he replaced the glass in his car and even the glass in his spectacles with Plexiglas. Among the many uses Röhm's researchers explored were musical instruments. One such instrument, the acrylic violin, while striking in appearance produced a terrible sound. The Plexiglas flute was more successful. The most important applications of Plexiglas, however, were not for see-through flutes but for airplanes.

It was through such frivolities as the acrylic violin that company researchers learned how to stretch and shape Plexiglas sheets into cockpit enclosures. By 1934, when these techniques were almost perfected, the Nazi government had placed restrictions on the transmission of technical reports abroad. Haas got around these restrictions by sending one of his own chemists from the United States over to the company's German laboratory and having this man memorize the technology.

The U.S. Army Air Force was immediately interested in Plexiglas because it was lightweight and durable, and the design of war planes was altered to take advantage of this new, shatterproof material. Rohm and Haas, anticipating the entrance of the United States into the war, enlarged its capacity to manufacture Plexiglas so that the discovery made in Nazi Germany could benefit the Allies.

1934–1975

During the war Plexiglas accounted for two-thirds of Rohm and Haas's sales. In the last year before the war, sales had reached $5.5 million and by the end of the war this figure had swelled to $43 million. However, Plexiglas was not the company's only contribution to the war effort. In 1934 Herman Bruson, an employee hired by Haas, discovered a synthetic oil additive. It was not until the war that the significance of his discovery was revealed. Designers of military aircraft had difficulty finding a hydraulic fluid that would function at a sufficiently wide temperature range, until a review of potentially useful patents turned up Bruson's formula. Bruson often took credit for the Russian victory at Stalingrad since his hydraulic fluid kept Russian equipment from freezing, unlike the German hydraulic fluid which was rendered useless by the cold.

When the war ended Rohm and Haas experienced a dramatic decrease in the demand for Plexiglas and, as a result, the company struggled to expand the civilian uses of acrylic polymers. Plexiglas began to be used for illuminated signs and car lights, along with additives for coatings and fuel. The company's major undertaking in the decade following the war was building a huge plant in Houston, Texas, that was used to make the ingredients for acrylics. Along with acrylics the company also attempted to increase its holdings in markets for insecticides and fungicides. Exports, especially fungicides, were used to expand the company's European markets which Haas had previously left underdeveloped in order not to compete with his friend Röhm.

In 1959, the 50th year of Rohm and Haas's U.S. operation, Otto Haas retired, leaving the company in excellent shape. He was described as a hard-driving administrator who was, by turns, kind and unfair to his employees. One incident that typified Haas's attitude towards his employees took place during World War II when a new guard refused to allow Haas into a company munitions plant without a pass. Haas immediately fired the man and then rehired him the next day with a raise in pay. John Haas, Otto's son, was a less colorful president. John's style of administration stressed teamwork among the top executives, while his father's administration had stressed obedience.

Ill-Fated 1960s and 1970s Diversification

One of the first projects John Haas undertook was the ill-fated diversification into fibers and health products. At the time Rohm and Haas was the main producer of Plexiglas in the country, and had a successful product mix of paper, leather, textile, and agricultural chemicals. The expansion into fibers was motivated by the fear that one of the large chemical companies would challenge the company in the Plexiglas and acrylic emulsion markets that Rohm and Haas dominated. Yet the challenge from the major chemical companies never materialized, and it was the measures taken to prevent the company from being hurt that caused the damage. The new divisions, health and fibers, were profitable in only one of their 14 years of existence.

The fibers division was especially costly. The company intended to enter the crowded field through technological breakthroughs and specialized markets; this was how it had succeeded with leather chemicals and acrylics. The company had high hopes for a new synthetic fiber named Anim/8, which was supposed to give fabrics added stretch without altering their appearance. Anim/8 failed in part because Rohm and Haas misunderstood the nature of the fibers market. While an aerospace manufacturer might pay the higher dollar amount for a superior hydraulic fluid, consumers did not care that Anim/8 had slight advantages over its competitors, Spandex and Lycra, when it was 20--30 percent more costly. Secondly, Rohm and Haas entered the field just as women were abandoning girdles and other undergarments that were a major market for stretch fabrics. The coup de grace was the crash of the entire synthetic fabric industry in 1975 when, as company president Vincent Gregory said, "You couldn't give the stuff away."

Bridesburg Tragedy

Earnings were depressed in the late 1960s and early 1970s as the losses incurred by the two new divisions canceled out the gains made by specialty chemicals. The company's troubles were not only of a financial nature, however. In 1975, just as the synthetic fabric industry was reaching its nadir, Rohm and Haas was deluged with bad publicity surrounding the deaths of workers who were exposed to a carcinogenic chemical called BCME. In 1962 a suspicious pattern of lung cancer deaths emerged at the company's Bridesburg, Pennsylvania, plant where resins for water purification purposes were produced. The company took measures to minimize employee exposure to chemicals at the plant, but its efforts were not sufficient. In 1974 the Health Research Group, founded by Ralph Nader, accused Rohm and Haas of concealing the dangers at the plant, 54 employees of which had died of cancer, probably induced by BCME.

Vincent Gregory, who had become president in 1970, was confronted with a difficult situation. Not only did he have a public relations fiasco on his hands, but he also had to accept some of the blame for the company's financial situation since he should have divested Rohm and Haas of the fiber and health divisions immediately upon his appointment. By 1975 the company began to lose money and there was speculation that Gregory would be relieved of his duties. However, the chairman of the board, John Haas, assumed his share of the blame for having started the ill-fated diversification into areas that were unfamiliar to the company. The board decided that Gregory had had "an expensive education," and retained him to help revitalize the company.

1980s Turnaround

1982–1999

The solution to the company's difficulties turned out to be a combination of cost-cutting (including extensive layoffs), the sale of unprofitable plants, and a few judicious acquisitions. One acquisition was the Borg-Warner PVC modifier plant (the modifiers make PVC more malleable), a business that was inexpensive to purchase but that had not been profitable for a period of time. Rohm and Haas, with its experience in plastics, returned the plant to profitability by 1982, a year after it was purchased for $35 million.

The company decided to keep their slow-growing but profitable staples such as Plexiglas and paint and floor finishes. For faster growth it turned to herbicides, which the company started working with in the 1930s. A herbicide called Blazer, used on soybeans, had the largest sales in its specialized market. By building on its experience with resins Rohm and Haas made coatings for electronic components a part of its product line through the purchase of a 30 percent stake in Shipley Co. Inc. in 1982. These acquisitions marked the company's return to its early strategy: relying on businesses and product lines it was well acquainted with, concentrating on value-added chemicals, and increasing its market share rather than its size. This old-fashioned approach resulted in record profits. In 1985 sales were down slightly, but given the difficult economic conditions that existed that year for chemical companies the performance of Rohm and Haas was regarded by many industry analysts as satisfactory.

The late 1980s saw revenues increase to $2.66 billion by 1989, while earnings reached a record $230 million in 1988 before falling to $176 million in 1989. In mid-1988 Gregory retired as chairman and CEO, with J. Lawrence Wilson selected to succeed him. The popular Wilson--a cost-cutter quoted by the Wall Street Journal as saying, "I'm probably a bit of a cheapskate"--had once been in charge of Rohm and Haas's European operations and had been serving as vice-chairman and director of corporate business.

1990s and Beyond

The recession of the early 1990s created more difficult conditions for Rohm and Haas, but the company managed to keep its earnings from falling as far as some of its rivals. The tight ship that Wilson ran helped make Rohm and Haas one of the most efficient specialty chemical companies in the industry. A net loss of $5 million in 1992 resulted from a reduction in earnings of $179 million caused by the adoption of a new accounting standard for retirement benefits. That year, sales surpassed the $3 billion mark for the first time, totaling $3.06 billion.

Meanwhile, Rohm and Haas made a number of moves in the 1990s to bolster and extend its existing product areas. In 1992 the company paid $175 million to Unocal Corp. for that firm's emulsion polymers business, which included acrylic polymer lines for paints, coatings, and varnishes. That same year, Rohm and Haas joined with Elf Atochem of France to form AtoHaas Americas, a joint venture that included the Plexiglas business of Rohm and Haas and Elf Atochem's Altuglas operation. In mid-1998, however, Rohm and Haas sold its half-interest in this venture to its partner, thus divesting itself of its most famous product. Though Plexiglas was long a company staple, Rohm and Haas had determined that its future lay in more specialty chemistry. In yet another 1992 move, Rohm and Haas issued $170 million in stock to purchase the 70 percent of Shipley it did not already own, thereby lifting the company's profile in the field of chemicals for the electronics industry.

During 1993, when Rohm and Haas's net earnings fell to $107 million--in part because of the skyrocketing prices of raw materials used to make specialty chemicals--Wilson announced a reengineering effort aimed at further curtailing costs. By 1996 1,300 jobs were eliminated, mainly through attrition. Sales that year reached $3.98 billion, while record net earnings of $363 million reflected both the strength of the economy and the effectiveness of the restructuring. In July 1996 Rohm and Haas formed a 50-50 joint venture with Röhm, its one-time German sister company, called RohMax. The venture, which involved the manufacture and sale of petroleum additives, was short-lived, however, as Rohm and Haas sold its interest to Röhm less than two years later.

In June 1997 Rohm and Haas purchased a 25 percent stake (later increased to 31 percent) in Newark, Delaware-based Rodel, Inc.--an expansion of its electronic materials sector. Rodel specialized in precision polishing technology for the semiconductor and other industries. Additional electronic chemicals expansion came in the form of the 1997 acquisition of Pratta Electronic Materials, Inc., of Manchester, New Hampshire, which was involved in wiring board materials; and the January 1998 formation of a joint venture between Shipley and LG Chemical Ltd. of Korea for the manufacture and sale of microelectronic chemicals in Korea. Shipley owned 51 percent of the new entity.

Later in 1998 Rohm and Haas announced that for financial reporting purposes it had reorganized its businesses into three sectors: performance polymers, chemical specialties, and electronic materials. In July 1998 the company purchased a minority stake in Isagro Italia, a subsidiary of Isagro S.p.A. specializing in crop protection products. That same month Rohm and Haas announced a plan of succession to create the management team that would lead the company in the early 21st century. John P. Mulroney, president and chief operating officer since 1986, would retire at year-end 1998 and be replaced by J. Michael Fitzpatrick, who previously held the position of vice-president and chief technology officer. Wilson would retire by the end of 1999, with Rajiv L. Gupta, vice-president for electronic materials and Asia-Pacific, taking over as chairman and CEO. Rohm and Haas was long overdue for a major acquisition to build upon its solid core businesses, and it was quite possible that the new leadership would be more aggressive in pursuit of such a move.