Too Big to Fail

By Karen McIntyre, Editor | April 5, 2012

A few weeks ago, the industry was abuzz with speculation that Avgol could be sold to PGI owner, Blackstone Capital. Avgol quickly quipped back that its recent talks with the private equity firm were simply a matter of course, saying that periodic conversations with potential investors or partners were a regular part of its business activities and this recent conversation in no way meant that a sale was imminent.

Of course, we all remember a few years ago, Avgol was the suitor in a round of conversations with Fiberweb. These conversations obviously went nowhere and Fiberweb ultimately sold its hygiene business to Fitesa, creating a large force in the hygiene business, but not nearly as big of a conglomerate as an Avgol/Fiberweb combination would have made.

All three companies—PGI, Avgol and the business that formerly belonged to Fiberweb—are huge nonwovens companies, and more importantly, they are really massive providers of spunmelt and/or spunbond materials to the global diaper market. Could it even be possible that two companies of this size could merge? And, what would it mean for the global nonwovens industry.

A few years ago, when the potential Avgol/Fiberweb deal did not reach fruition, the industry rumor mill claimed that Procter & Gamble blocked it. Supposedly, P&G did not want so many of its eggs, so to speak, in one basket. P&G wants its suppliers to be large enough to keep its margins as thin and its operations as efficient as possible, but not so large as to be a dominant force in the market.

That’s probably why the merger between Fitesa and Fiberweb made more sense, combining Fitesa’s operation in Brazil with a new operation in the US and Fiberweb’s lines in Europe created an organization large enough to run at the efficiencies diaper makers demand without overshadowing competitors.

The same cannot be said for a potential PGI/Avgol collaboration. The vast majority of Avgol’s $275 million in global sales are within spunbond while PGI—with lines spread around the world—is already the largest supplier of spunbond and spunmelt technology in the world. Putting the two together would create a virtual powerhouse that all but dominates markets in the Americas and China. I wonder if the big boys in the diaper market would allow it.

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