Thulani Khoza, a smartphone manufacturer, grew up hungry with no parents and was sexually abused. He endured it all to build his own company, Thules Telecoms.
Soon after he was born, in the east of Johannesburg, his parents abandoned him. This cruel twist of fate saw Khoza move to Bushbuckridge, a small poor town in Mpumalanga, to stay with his grandmother.
“Growing up was hard. I would walk to school and back by foot. On hot days I’d feel the heat on my feet and when it rained it poured on me. And when I get home I’d find that my aunts had only reserved food for their children,” says Khoza.
The odds were stacked against him and it was about to get worse. Khoza says a cousin raped him leaving physical and emotional scars.
“I have an operation on my manhood. It’s gets painful every winter season and it’s a reminder of what happened,” he says.
As if that was not enough, later that year, he survived two accidents; one put him in hospital for six months. Khoza was alone and cold in a world of suffering.
“It was a difficult time in my life, so much so that I tried to commit suicide five times.”
The scars on Khoza’s body tell the story of his anguish.
“I was burned by iron. I had hot water thrown over my body by family members,” says Khoza, as tears well up his eyes.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-5520" src="/wp-content/uploads/2017/05/Thulani-Khoza-043-200x300.jpg" alt="" width="200" height="300" />
The 30-year-old entrepreneur has a soft shaky voice but he is tough.
In those lean days his hunger for a better life kept him going. After completing matric, he moved back to Johannesburg to stay with a relative. But death was at the door; the cousin died. This left Khoza to fend for himself.
“After his death I felt lonely and I had no place to call home. So I ended up sleeping at church. The security guard would give me his jacket to use as a blanket.”
Khoza was not to be beaten.
His love for technology saw him take on a degree in computer science from the University of the Witwatersrand. Here, he also slept in lecture halls.
“I would wake up at 4AM so that other students would not see that I was sleeping in the class,” he says.
Khoza had to rely on others to pay for his fees. His church raised money to cover his first year and a bursary from MTN allowed him to complete his degree.
Surviving was not easy but he somehow managed to.
While studying, Khoza would fix people’s computers and laptops to earn extra money and his love for technology grew.
He followed his degree up with a couple of post-graduate degrees, including an Honors in Software Engineering from the University of Nottingham, in Britain, and a Master’s in business administration at Baker University in the United Sates.
Soon after completing his studies, Khoza was hired as a system analyst for South Africa’s public broadcaster, the SABC. He then left the broadcaster to join cell phone giant MTN.
“I became restless in spirit and mind,” he says.
Khoza wanted to be his own boss.
In 2008, he created his own Android-powered smartphone, which he says will boast greater security in the technology industry.
“It lets the user encode the phone. It makes the phone 99.9 percent secure,” says Khoza.
The app, exclusive to the phone for now, will help up-and-coming entrepreneurs connect with others around the world and those already established, all via an electronic forum.
Thules Telecoms has 89 employees and has received orders from as far as the United States, Britain, Mexico, Portugal, and Ghana.
“People used to look at me like I was nothing, and because of that I told myself that one day I was going to be great and get the treatment that I deserve. Yes, I suffered in life, but I decided not to live my life in anger and bitterness because it can destroy you.”
“I’ve come to realize the fact that my parents abandoned me, they don’t owe me anything. Nobody owes me anything. I’m in charge of my own happiness,” says Khoza.
Despite the lemons that life throws at him, Khoza is able to make lemonade.

Triumph That Came After  The Tears

I felt green to the core. The Vice-President of the United States (US), Al Gore, was coming to South Africa to deliver his An Inconvenient Truth address at Maropeng and I was going to introduce him to a packed audience.
But there was a slight challenge. Gore could only travel from the airport in a small convoy of hybrid vehicles.
A Japanese luxury vehicle manufacturer had recently brought out a range of stunning hybrid SUVs, with enviable fuel consumption and low emissions, and were keen to supply them for the trip to the Cradle of Humankind. But the reply from his office was quite prescriptive; he could only be seen in a hybrid sedan.
This was duly arranged and the Maropeng gathering was supercharged with Gore’s mission to save the planet and how we could make a difference.
The missing link is how did he return to OR Tambo that evening? Well… in a rather large helicopter. In some ways I turned from dark green to light green in a matter of minutes.
Make no bones about it, I’m not saying that we don’t need to preserve fossil fuels and cut down on all forms of pollution. I wouldn’t dare argue with the experts who have exposed holes in the ozone layer and correlate this with dwindling ice caps.
By its very definition, pollution has harmful, and even poisonous, effects and you will find it difficult to get an appointment with an ENT specialist in many of the areas around Africa where industry rules the airwaves.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-4198" src="/wp-content/uploads/2017/04/Thampapon-Shutterstock.com-002-199x300.jpg" alt="" width="199" height="300" />
And when it comes to vehicle emmissions you can’t help but be totally shocked when the US Environmental Protection Agency calculates that the average passenger car spews out
4.7 metric tons of carbon dioxide a year!
So, for many of us, it was a like Tiger Woods moment when the Volkswagen (VW) scandal over rigged emissions tests broke and our minds went back to the ads for the Beetle comeback which showed flower power over two generations.
It is a gaffe that has denuded faith in VW and is likely to have long term affects on their market value, and possibly even the German economy. It is the biggest crisis in their 78-year history.
Media reports say the overall cost of the debacle could amount to $86 billion – that’s $30 billion more than the BP oil spill in 2010!
VW say that the defeat devices were fitted to around 11 million vehicles worldwide. But it seems not every owner will have to rush to get their cars refitted or reprogrammed. Volkswagen Group South Africa says that no action is required on the part of their customers or dealers.
Here is where things get complicated. According to VW Brand PR Manager Andile Dlamini, the irregularities reported overseas relate to a nitrogen oxide emmission standard known as Euro 5. In South Africa, the compliance standard is EU2.
So the VW and Audi diesel engines in question comply with South Africa’s regulations in relation to nitrogen oxide and, according to Dlamini, the software does not negatively affect the carbon dioxide values – which leaves me feeling that I should have concentrated harder in science class.
So any recall of cars around Africa will depend on that country’s specific emission standards.
Surprisingly, in terms of numbers, this won’t rate among the biggest recalls in history.
The automotive world is still reeling from the defective Takata airbags which can shoot out sharp metal shrapnel when deployed. Around 35 million vehicles may be affected in the US and an additional seven million have been recalled worldwide.
Nearly two dozen brands have been affected in this rather frightening scenario which has left some dealers disabling the airbags and affixing ‘Do Not Sit Here’ stickers to the dashboards as a temporary measure!
If we focus on a single manufacturer, then the recall record goes to Ford in the late seventies. It involved a failed safety catch which allowed all Ford automatics to slip from Park to Reverse with no warning. The safety defect was blamed for 6,000 accidents and 98 deaths. Repairs to 20 million vehicles and a host of law suits reportedly cost Ford $1.79 billion. A fortune back in the day!
It was a testing start for Mary Barra when she took the helm of the General Motors Company (GM) in the midst of a massive recall at the beginning of last year. Under the spotlight of becoming the first woman to head a major automobile manufacturer, she faced revelations about faulty ignition switches and pressure from investors to return more cash to investors.
Listed by FORBES as one of the Top 10 most powerful women in the world, Barra inherited the ‘new’ GM which was founded in 2009 after the trials and tribulations of bankruptcy and a Chapter 11 reorganization. And the leaner operation has been declaring profits since 2010 despite the costly recall and a dip in share prices.
GM sold over 180,000 vehicles in their Africa markets last year – which represents a 10% market share. The President and Managing Director of GM Sub-Saharan Africa, Ian Nicholls, says he is excited about the growth potential of the business.
“We are finalizing the details of our agreement with Isuzu to build higher volumes of vehicles in South Africa. The Isuzu range has a reputation for reliability and capability, and is engineered for local conditions,” says Nicholls.
The Chevrolet portfolio extends from that tiny Spark, through the Captiva, to the daunting Trailblazer. The updated Trailblazer is handily placed to take a slice out of the Fortuner market with an attractive and comfortable cabin, in grey and black trim, and the model I tested with the 2.8-liter Duramax turbodiesel engine has grunt to spare with a fairly stable fuel gauge – well a claimed 8.5l/100km.
Strangely it’s the infotainment system of the beast that impresses me the most. The Chevrolet MyLink setup, with rearview camera included, is the essence of simplicity and makes you wonder why so many German marques make choosing a radio station a life study.
But it’s Opel that is really turning heads and order books.
“The Opel brand is on the rise with sales volumes up more than 76 percent year to date, on the back of a product onslaught,” says Nicholls.
For me one of the surprise packages of the year is the tiny Opel Adam, available in funky guises of Jam and Glam, with a one-liter turbo engine that loves to canter. It’s even more appealing than a Fiat 500 and has more standard features than any luxury car I have tested.
Little wonder it is bagging international awards.
But despite these positive outlooks, GM and virtually all car manufacturers, many surviving as hybrids born of takeovers, must be nervous about further major recalls that could spell financial disaster.
And here’s what will make them even more wary. The British government is to start its own enquiry into car emissions, running new tests on engines from across the industry and comparing the results with on-the-road emissions.
These independent tests could even challenge the claimed fuel consumption figures which, in many cases, seem to have been calculated on some of the steep downhills of the Tour de France.
Accountability is going to be the name of the game.

Do You Recall?

As the third-generation owner of Zippo Manufacturing Co., one question always dogs George Blaisdell Duke: “You guys are still in business?” It’s not that people want to be nasty, he says. It’s just that America doesn’t light up as much as it used to, so it’s a reasonable question for the most famous maker of cigarette lighters in the world. And he has a well-worn answer handy. “Well, of course we are,” he says, reaching across his office desk for Marlboros and his own personal Zippo, a silver one with waves engraved on it. “Business is doing very, very well.”
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-3720" src="/wp-content/uploads/2017/04/052__04FL0-lowrez-1-300x180.jpg" alt="" width="300" height="180" />
Never better, actually. Despite the 50% downturn in the number of U.S. smokers since the heyday of cigarettes in the 1950s, Zippo booked more than $200 million in sales last year – a record – and had the best May and June sales in its history in 2014. FORBES estimates revenue has increased by a compounded 14% in the past three years, thanks to a new, non-smoking CEO, Greg Booth, who pushed the 82-year-old manufacturer’s legendary lighters at a younger audience and expanded business in China. New products – a (legitimately appealing) clothing line and camping gear – and its first retail stores added fuel to the fire. “Zippo has maintained its iconicness,” says Timothy Donahue, an industry observer and editor at Tobacco Reporter, “and it has diversified quite well.” It’s a long way from the first Zippo, created by George Blaisdell after watching a friend struggle to light a cigarette on a windy day in 1932 in Bradford, Pa., a small town in the Allegheny Mountains where Zippo is still based.
He came up with a windproof chimney and the distinctive hinged lid – and guaranteed the lighter for life, meaning Zippo would continue to fix the lighter as long as its owner sent it to the factory. After soldiers received the lighters in WWII, Zippo successfully marketed itself with a utilitarian, made-in-America image for the following half-century.
Nonfamily CEOs ran it after the 1978 death of Blaisdell, who left Zippo to his family. By the 1990s his daughter Sarah Dorn and her son, Duke, had bought out the rest of the clan. “The more family members that are owners, the more directions that they think the company should go. Sometimes the privately owned companies don’t make it,” says Duke, who has since acquired his mother’s stake, too. “Sometimes people get impatient with the lack of temporary success, shall we say.”
Zippo hit just that kind of a rough patch in the 2000s. Duke won’t comment on how far sales plummeted, but his displeasure with Zippo’s  performance can be felt in his decision to make Booth CEO in 2001. (Booth had been running Zippo’s knife making subsidiary.) With only himself to please, Duke could wait for Booth to find the solution. The average age of Zippo’s customers then still hovered between 30 and 50 years old. It needed to think younger. Or else, Booth thought at the time, “all the buyers will have Zippos in their caskets, like Frank Sinatra.” (The crooner was buried with his trusty silver Zippo in 1998; replicas were handed out at his wake.)
It needed to reach the generation – ages 18 to 24 – who were children when Sinatra died.
To do it the company shifted ad dollars from print to Google AdWords and sponsored music concert series. They churned out lighters with Jack Daniel’s imagery and others inspired by the TV show Sons of Anarchy. (Skull images have proved especially popular.) All told Zippo produced 30,800 unique designs last year – up from 8,900 a decade ago, a 246% increase partly owing to a new Zippo.com feature where you can design your own lighter from scratch.
Zippo has positioned itself as a maker of talismans, lucky charms – or something akin to customized belt buckles. “The Zippo lighter is a thing of taste,” Booth says. “Sometimes it’s used by folks just as a fashion statement.”
That’s also the guiding light Zippo is following in China. When Booth took over, the Chinese business didn’t exhibit so much as a pulse. Now it’s 13% of Zippo’s revenue (60% of sales come from overseas). Zippo first put boots on the ground there in 2012, and today it has a 15-person team in Beijing. It has opened 14 retail stores in China – Zippo’s first plunge into creating its own stores – with another 35 to come by 2015, all riding the idea of Zippo as an all-American lifestyle brand. The stores carry a Zippo-designed clothing line (logos on the interior tags only), with gear resembling J. Crew’s preppy woodsman style. The stores worked well enough for Zippo to open two Las Vegas stores – in the Luxor hotel and Planet Hollywood casino – earlier this year. Zippo has its eye on several more Vegas locations.
Another brand extension: camping products (grills, stoves, LED lanterns). It launched in 2012, and sales were around $3 million last year; Zippo hopes to hit $20 million by 2016. For now those products are partly made in China. Greater sales would make it economically feasible to move those overseas jobs to Bradford (pop. 8,600), where Zippo remains the greatest source of blue-collar jobs, employing around 950 workers. The Blaisdell family remains the town’s greatest patron, even making up the difference at the perennially lossmaking country club.
Not everything Zippo tried caught fire. Booth originally created an ambitious plan to hit $300 million in sales by 2010: “We had the economic downturn. That set us back dramatically in terms of sales.” Zippo also planned to acquire more companies. It largely hasn’t.
Success enough, though, for Duke to dread Booth’s retirement at the end of 2015. A replacement will likely come from within the company. Duke has no plans to step down himself, but he is actively cajoling both his twentysomething sons to take his place. One has already worked at developing new lighter designs while on his college breaks. “This is just a metal box,” Duke says, twirling his Zippo in his hands and drawing deep on a cigarette. But, he says, “there’s a lot you can do with a metal box.”

Sparking Zippo

Andre Fourie left the lecture rooms and aboratories behind to become the chief executive of Poynting Holdings; the largest wireless antenna designer and manufacturer in South Africa.
Fourie founded his business while he was a lecturer at a university in South Africa. Today, the company focuses on four main technology segments: monitoring and communications antennas, commercial cellular end user antennas for 3G, LTE and WiFi consumer antennas; cellular coverage solutions for operators and cellular infrastructure providers as well as digital television solutions to TV broadcasters.
Since leaving his academic path, Fourie has never looked back. The new path led him to the helm of a R387-million ($33 million) company, as of January, and listed on the Johannesburg Stock Exchange’s AltX board. The AltX provides smaller companies with access to capital while providing investors with exposure to fast-growing smaller companies in a regulated environment. Poynting’s share price is up 82% since 2008.
When he was a boy, Fourie’s father, a bank manager at the time, advised him to never work for a salary.
So, while he was still at school, Fourie would buy old radios, fix and then sell them. It was a skill he learned from his grandfather who was a farmer.
“I grew up in an extremely Afrikaans environment, including the typical army conscription at the time. And there I got advised by a guy, I think I got a very multicultural exposure which I think people missed about the military background that all of us were forced to take. And secondly, he said, ‘You must go to an English university, you can’t be this Afrikaans,’” says Fourie.
With this recommendation, he chose to study at the University of the Witwatersrand (Wits) in Johannesburg.
“It was a strange thing for an Afrikaans boy to do. At that time, they’d just burned the flag [the old South African flag used during apartheid] and that was a wonderful experience for me. It opened my eyes to how well you can do if you mix different cultures together,” he says.
Fourie graduated with a Bachelor of Science degree in engineering.
“Within one year of doing my fourth year, I started lecturing because my lecturer immigrated to the United Kingdom and, at the time, I was the only guy who knew something about antennas; you can imagine not that much,” he says.
He completed his master’s degree and was appointed as a research officer for the engineering department. In 1991, he also decided to work on a PhD in engineering.
“So I started building a research group and in the nineties we formed a company and started with consulting work. The company operated for about 10 years from Wits,” he says.
This company was Givati Fourie and Associates. It invented and designed its own products as well as provided specialized design services to the industry.
In 1996, the company was disbanded and Poynting Innovations was formed, with a similar business model and Fourie as chief executive. Four years later, Fourie says the company wanted to start manufacturing low-cost antennas and so he founded Poynting Antennas. With this, his staff increased from eight to 124 employees.
Though getting his company on its feet was not easy, Fourie got a helping hand from the Industrial Development Corporation (IDC), the Department of Trade and Industry and the military.
“I credit the government for helping to start our business, they really helped us in the beginning,” says Fourie.
Ten years after receiving his PhD, he became an assistant professor but decided he should focus on Poynting fulltime. In 2005, Fourie delivered his last lecture and ended an 18-year  university career.
Today, Poynting is a Pretoria-based company with a manufacturing facility in nearby Centurion, where he has a modest office on the ground floor. Their products are aimed at large international military systems integrators and distributors who contribute about 80% to Poynting’s turnover.
In April, the company released good results for six months to December 31, 2013. Its revenue increased by 27.4% to R53.5 million ($5 million) and after-tax profit increased 72.7% from R2.2 million ($200,000) to R3.8 million ($347,000).
The 50-year-old Fourie says the company is positioning itself as a leading player in the triple-play future. This is the convergence of television, voice and the internet on one digital platform.
Poynting acquired 100% of the issued share capital of the Pretoria-based African Union Communications (Aucom) in March for R49.5 million ($4.6 million). It was funded by the issuance of 66 million Poynting shares.
Poynting’s chairman, Coenraad Bester says this is the company’s first major deal since listing and they anticipate that it will more than double its turnover.
The acquisition increases the distribution of Poynting’s digital television products into the African markets.
Aucom works with a lot of broadcasters in Africa, where digital migration is creating a huge demand for solar-powered systems that enables the viewing of new channels on new platforms.
Fourie says the deal will significantly increase the market share of both companies and facilitate the raising of additional capital for the development of projects to meet the needs of the growing African digital television market.
In July, the company acquired two more key acquisitions including Radio Network Solutions (RNS) for R110 million ($10 million). According to Reuters, the deal will be settled by a cash payment of R60 million ($6 million) and the issuance of 18.2 million new Poynting shares at 275 cents each.
The company also acquired Poynting Europe, which distributes the company’s commercial antenna products in Europe. Fourie says these two acquisitions will help turn the company’s fledgling commercial and cellular coverage solution (CSS) divisions to profitability.
Fourie says Poynting remains focused on acquisitions to improve international sales and contribute to the current defence, telecommunications and digital business.
Not bad for an Afrikaans boy who started by selling radios.

How A Farmer And An Old Radio Made An Entrepreneur

Last November Apollo Global Management, the powerful buyout shop run by billionaires Leon Black, Marc Rowan and Joshua Harris, finished cashing out of arguably the greatest private equity deal of all time.
As they furiously sold billions of dollars of shares in LyondellBasell, a chemical maker, in several batches, they had every reason to think they were doing the right thing. By any metric it was a monstrous score. Since 2008 the firm had turned a $2 billion investment in the company, a plastics manufacturer and petroleum refiner based in Rotterdam with its main executive offices in Houston, into $12 billion, a sixfold return on investment that juiced the results of its biggest fund to a net internal rate of return of 30%. It was an astonishing result, especially in postcrash Wall Street, landing Apollo atop the lucrative private equity world and helping to launch an initial public offering of the firm, which is now valued at $10.5 billion. Harris earned $397 million from his work at Apollo last year alone; Black made $546 million.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-3059" src="/wp-content/uploads/2017/04/FO081814_108-225x300.jpg" alt="" width="225" height="300" />
But even as Apollo’s billionaires were exiting from LyondellBasell, another billionaire investor was continuing to double down. In 2013 Len Blavatnik spent $575 million purchasing 8.5 million of Apollo’s LyondellBasell shares, an unparalleled bet on an investment that had already helped make him one of the richest men in the world, and one that had many scratching their heads at the time.
“It’s an easy argument against it: If Apollo is selling, why are you buying?” Blavatnik tells FORBES in a rare interview. “Before every one of my additional purchases of stock in LyondellBasell, some people around me told me it was a mistake and that I should sell instead of buying more.”
But so far Blavatnik has been right—seriously right. Shares of LyondellBasell have soared by more than 50% since he bought his last block of stock from Apollo.
In the history of Wall Street there haven’t been too many moneymaking machines quite like LyondellBasell, which has seen its shares return 500% since it emerged from bankruptcy four years ago. And that’s been especially lucrative for Blavatnik, 57, who cobbled the company together, saw it fail and plunge into bankruptcy court, and then doubled down on the same assets, personally investing another $2.37 billion in LyondellBasell the second time around.
His investment is now worth more than $10 billion, generating $8 billion in mostly unrealized personal profits. As it stands, FORBES believes it’s the biggest individual score from a single deal, ever. While Blavatnik usually makes headlines these days for his media holdings, like Warner Music or his stake in Beats Electronics, those parts of his portfolio are a sideshow compared to the LyondellBasell redemption that has pushed his net worth above $20 billion—making him the world’s 33rd-richest man.
“It is an historic transaction,” says Mark Epley, managing director in Nomura’s private equity banking unit. Says Stuart Gilson, a Harvard Business School finance professor who has studied LyondellBasell’s restructuring: “It’s outstanding given the return, but recalling what we were all feeling in 2008—it was the end of the world—makes the outcome even more remarkable given the enormous risk.”
Blavatnik, who owns 16% of LyondellBasell through his Access Industries, thinks there’s still more room to run, wagering that LyondellBasell’s stock will continue to rise. “So far I feel vindicated and proud of my investment decisions,” he says. “The question is whether the luck will continue.”
&nbsp;
When Len Blavatnik was first handed an investor memorandum for Dutch chemicals company Basell, it had the number 64 on the cover, prompting one of Blavatnik’s associates to caution him about jumping in. Why bid for a company that 63 other players were already considering? Blavatnik waved him off—he wanted to create a global chemicals empire, and this was his way in. A Ukrainian-born American citizen who grew up in Russia and immigrated to the U.S. in 1978 at the age of 21, he later got his M.B.A. at Harvard. Blavatnik made his first fortune with a former classmate in Russia, Viktor Vekselberg, in oil and aluminum deals during the anything-goes post-Soviet days.
Blavatnik’s biggest scores in Russia were oil company TNK-BP, a joint venture with British Petroleum that was eventually bought by Rosneft for $55 billion, and Sual, an aluminum producer that merged with the larger Rusal. Chemical companies that had nothing to do with Russia would be his next big thing. He paid full price, putting down $1.1 billion to purchase Basell in a $5 billion leveraged buyout in 2005. Then he tried, and failed, to buy other chemical companies, including Huntsman International.
In 2007 Blavatnik decided to buy Lyondell, a Houston-based company—not particularly well run—that produced commodity chemicals used in making plastics and that also had refining assets. Blavatnik had been stalking Lyondell, buying up the right to purchase 8%. When he decided in July 2007 to use Basell to buy up a controlling stake in the company at $48 a share, a 45% premium to the market price, Blavatnik’s associates got nervous. Alan Bigman, a trusted lieutenant who’d been working for Blavatnik for a decade, woke up at 4:30 one July morning, unsettled by the deal.
“I know you’ve already made up your mind,” Bigman wrote to Blavatnik, according to a court document. “But I am uncomfortable with the valuation.” Blavatnik waved him off and did the same when Philip Kassin, another colleague who also sat on Basell’s board, expressed his own worries. Ultimately, Blavatnik has told FORBES, employees can voice their opinions, but he is “risking my money, not their money.”
Basell bought Lyondell in a $20 billion leveraged buyout in December 2007 to create LyondellBasell, the world’s third-biggest independent chemicals company. The timing couldn’t have been worse. Within months the financial crisis hit and the deal looked like a debacle. Weighed down by more than $20 billion in debt, LyondellBasell hit the wall as the economy crumbled. Chemical orders stopped, a huge crane collapsed in an accident at its Houston refinery that killed four employees, and Hurricane Ike shut down its plants in Texas. Some 2,500 employees, 15% of its workforce, were laid off at the end of 2008. In early 2009 Blavatnik pushed LyondellBasell into bankruptcy. It was a humiliating moment for Blavatnik. “Filing for Chapter 11 is an experience I would never want to repeat; it was really a dark moment,” he has said of that time.
It was also his biggest-ever financial loss. How much he lost has been a subject of fierce litigation by LyondellBasell creditors, who went after Blavatnik in a lawsuit that continues to this day. At minimum, Blavatnik was out $1.2 billion. But despite the reversals, Blavatnik believed in the assets and potential earnings power of a company he felt had simply been hit by a perfect storm.
He wasn’t the only billionaire with an appetite for chemicals. Apollo had also been trolling the industry, buying and owning chemical assets like Hexion Specialty Chemicals and Momentive Performance Materials that had been similarly battered by the financial crisis, sinking Apollo’s performance. Yet, like Blavatnik, Harris, Black and Rowan knew the industry and decided to keep investing. Before LyondellBasell headed to bankruptcy court, Harris bought ­LyondellBasell term loans from a reeling Citigroup at a discount and kept buying bank debt for as low as 20 cents on the dollar, as the financial crisis raged and those loans plunged in value. Harris knew some people on Wall Street thought he had lost it, but Apollo’s analysis determined that the most secured LyondellBasell debt would perform well absent a complete global economic collapse.
“Every day we would buy Lyondell as prices fell. We had conviction, and we were buying supercheaply,” Harris tells FORBES. “We were able to pair our deep industry expertise in chemicals with a highly complex distressed process so it highlighted what we are good at in terms of distress for control.”
It was a daring $2 billion investment that gave Harris an opportunity to convert his debt into a big equity stake in LyondellBasell in bankruptcy court. That meant working with Blavatnik. Harris and Blavatnik are friends who still get together socially and whose wives know each other. Still, a minor skirmish broke out between them over who would run the “debtor-in-possession” bankruptcy financing—and in turn have more control over the company. In the end Harris won out, leading an $8 billion bankruptcy financing that included an innovative roll-up feature that allowed Apollo to move some of its debt higher in the capital structure. Harris and two other Apollo representatives jumped on LyondellBasell’s board, and they worked closely with Blavatnik and his team on the restructuring. “Overall, we had a very good working relationship with Apollo,” says Blavatnik. “Sometimes it was tense because we had somewhat different interests in the beginning.”
The bankruptcy wiped out Blavatnik’s stake in the company, but he found ways to rebuild equity in LyondellBasell, mostly through private transactions with creditors and buying stock on the Pink Sheets, where LyondellBasell’s shares traded. He also kept his new key advisor, Stephen Cooper, who guided Enron through bankruptcy as CEO, on the board. (He’s now CEO of Blavatnik’s Warner Music.)
In bankruptcy court LyondellBasell shed the weight that brought it down, including bad contracts and high-cost assets, shutting expensive plants in Texas and Germany. It reduced its debt load to $2.5 billion, slashing annual interest expenses by $1.7 billion. The company added as its CEO Jim Gallogly, who had headed Chevron Phillips Chemical Co. Gallogly got 1.8 million restricted shares and options to purchase 5.6 million shares for $17.61 apiece to run the floundering company. “It was hard to convince Jim, and it took us some time,” says Blavatnik. “We offered a very attractive package.”
In 2010 LyondellBasell emerged from bankruptcy court valued at $15 billion. That number was about to soar.
The revolution that changed everything for Blavatnik, Apollo and LyondellBasell originated in the thin fissures of shale rock filled with oil and natural gas reserves throughout the United States. Throughout the last decade drillers pioneered new techniques of exploiting rock formations with hydraulic fracturing and horizontal drilling to draw out the petrochemicals trapped within. As a result, the U.S. became one of the world’s largest sources of cheap natural gas almost overnight, with prices falling from highs of $13 per million British thermal units to a $3 to $4 range today. This dramatic drop in prices proved a huge boon to dozens of industries, none more so than the chemical business—and few more than LyondellBasell.
LyondellBasell is a top producer of ethylene, which it upgrades into the plastic known as polyethylene, used in everything from food packaging to trash bags and hard hats. The company operates six facilities (known as “crackers”) to produce ethylene in the U.S. and four in Europe. Profits from ethylene and its derivative chemicals and coproducts are the core of LyondellBasell’s earnings.
Ethane, refined from natural gas, and naphtha, a crude oil derivative, are the prime raw materials used to produce ethylene. Starting in 2007, U.S. drillers were finding natural gas everywhere. By 2012 the price of ethane had fallen from 90 cents per gallon to 30 cents, giving U.S. chemical producers a huge advantage over foreign competitors in Europe and Asia that are dependent on pricey oil-based naphtha as a feedstock. The gap between the two supercharged LyondellBasell’s profitability.
LyondellBasell’s decades-old crackers in Clinton, Iowa and Morris, Ill., for example, are the only ones in the Midwest—and are situated near natural gas liquid pipelines and a hub in Kansas, home of some of the cheapest ethane in America. Almost overnight they were transformed, churning out profit margins of 32 cents per pound compared to European naphtha-based ethylene, which is barely even profitable. “It’s improbable that anyone could have foreseen the full impact of the shale revolution,” says Blavatnik. “But Jim had some experience and insight through his work at ConocoPhillips that I think helped.”
Gallogly, 61, a lawyer by training who was born on Canada’s Newfoundland island, quickly cut $1 billion of annual fixed costs and guided the company to swiftly take advantage of the shale gas boom, converting the company’s U.S. processing facilities so that 90% of the time they can run on cheap natural gas-based feedstock.
Gallogly’s strategy has been straightforward. Instead of spending huge amounts of money and time building new crackers like other chemical companies, he incrementally expanded capacity at his existing U.S. plants. That shortened construction time and allowed the company to quickly benefit from the ethane advantage, adding capacity while others waited for new permits. Instead of it taking six years for new plants to come online, it has taken just two years to add capacity. “Perhaps you have heard the expression,” Gallogly likes to say, “ ‘The early bird gets the worm’?”
In all, Gallogly has spent just $3.7 billion over the last three years on capital expenditures. He spent $510 million to expand capacity of a steam cracker in La Porte, Tex., to be able to process 800 million more pounds of ethylene from ethane, a project that will finish this year. He spent another $200 million to increase the ethane-processing capability at the company’s cracker in Channelview, Tex. Those crackers in the Midwest? For just $30 million Gallogly added 100 million pounds of ethylene and polyethylene capacity, worth an estimated $30 million in operating profits to the company. LyondellBasell has gone from posting losses in 2009 to profits of $3.9 billion on revenues of $44 billion last year. (Gallogly’s shares of LyondellBasell are now worth $380 million.)
Just as importantly for Blavatnik, Apollo and other shareholders, LyondellBasell has been a cash machine. In the past three years the company returned $8.4 billion to shareholders via share repurchases and dividends. It’s “a beast,” says Deutsche Bank analyst David Begleiter. “They are the poster child for the renaissance of the U.S. chemical industry.”
Other big shots on Wall Street have taken notice. Billionaire hedge fund manager Dan Loeb used more than half of his first-quarter letter to his investors wondering why Dow ­Chemical Co.—where returns have trailed ­LyondellBasell significantly over the last three years—wasn’t more like its rival. Loeb’s Third Point hedge fund has taken a ­position in Dow, and the activist investor made it clear that he would push Dow to follow LyondellBasell’s lead. “Underearning is clear when one compares Dow to its North American petchem peer, LyondellBasell,” Loeb wrote in May.
&nbsp;
Not everyone has been convinced the party will last, of course, but so far Blavatnik continues to have made the best bet. The investment firms of some billionaire investors—including Antony Ressler, David Einhorn and James Dinan—held stakes in LyondellBasell after it emerged from bankruptcy and sold them in the early innings of its rally. Harris and Apollo held on much longer, selling their LyondellBasell shares at an average price of $62.65 a share. Still, in July LyondellBasell started trading above $100. The feeling at Apollo was that the investment was unlikely to continue providing the kind of high returns private equity investors expect. Apollo, mindful of the cyclical nature of the chemical industry, also simply thought it was time to monetize one of the greatest deals ever. “As an institutional fund we have to make private equity returns,” says Harris. “So in our view it was time to monetize.”
Of course, unlike Blavatnik, who invests on his own dime, Harris’ Apollo needs to return money to outside investors, preferably in the kind of large amounts that will help Apollo raise more money. In fact, as Apollo was selling its LyondellBasell stake, it was raising $18.4 billion for Apollo Fund VIII, the most ever for the firm—and the biggest new private equity fund raised by far since the financial crisis. LyondellBasell certainly helped, making up 15% of the profits of the wildly successful Apollo Fund VII.
Now Harris and Apollo are making bets that natural gas prices will increase, essentially going against Blavatnik’s take on the market. In June Apollo announced it was buying natural gas properties from Encana for $2 billion in a straight-up play on rising natural gas prices. Apollo has also been wagering on Energy Future Holdings, a leveraged buyout bankruptcy that is actually bigger than LyondellBasell, working to take control of Energy Future Holdings’ unregulated unit, which would benefit if natural gas prices rise because the company produces electricity using coal and uranium while most electricity in Texas is generated using natural gas.
Blavatnik shrugs off worries about rising gas prices and continues to believe fervently that changes to the energy and chemical markets are near permanent, and abundant low-cost ethane will continue to fuel LyondellBasell. “The shale revolution is continuing,” he says. “And we see the competitive advantage staying for some time.” On July 25 LyondellBasell reported record second-quarter earnings of $1.17 billion. The stock closed at an alltime high of $107.49.

Tag: Manufacturer

FORBES AFRICA SOCIAL MEDIA

Triumph That Came After The Tears

Do You Recall?

Sparking Zippo

How A Farmer And An Old Radio Made An Entrepreneur

The Greatest Deal of All Time