JOSEPH CHANGGlobal Editor

ICIS Chemical Business

The State of the Chemical Industry

+ M&A Outlook

The State of the Chemical Industry

+ M&A OutlookISM Chemical Group

Mid-Winter ConferenceGalveston, Texas

February 27, 2008

ISM Chemical GroupMid-Winter Conference

Galveston, Texas

February 27, 2008

Forecasts from March 2007

Forecasts from March 2007

Verdict:Forecasts:

Commodity profits strong, stocks to rise

Somewhat true

True

True

Specialty profits continue momentum, but cautious on stocks

Attempts to take public companies private

On the money!Record year for M&A

2007 – A Tale of Two Halves2007 – A Tale of Two Halves

1H 2007

US economy started out strong

Supply/demand fundamentals favorable in chemicals

M&A activity at a record pace

Credit widely available at cheap rates

The Cookie CrumblesThe Cookie Crumbles

2H 2007 – Early 2008

Credit crisis triggered by collapse in US subprime mortgage market

Slowing US economy and potential for recession

Crude oil surges to $100/bbl

Impending petrochemical overcapacity

Q4 2007 Earnings Snapshot

Q4 2007 Earnings Snapshot

Q4 2007 EPS % Change

Dow Chemical $0.84 -14%

Nova $1.12 +955%

Eastman $ 1.27 +11%

Celanese $ 0.93 +52%

FMC $0.59 -3%

DuPont $0.57 +27%

Rohm and Haas $ 0.91 +11%

Hercules $ 0.31 +35%

Albemarle $ 0.60 -8%

Source: Yahoo! Finance

Wall Street OutlookWall Street Outlook

E2008 % Change Stock price* P/E**

Dow Chemical $3.50 -7% $38.96 11.1x

Nova $3.47 -9% $30.73 8.9x

Eastman $4.99 -1% $66.73 13.4x

Celanese $3.72 +9% $40.78 11.0x

FMC $3.82 +25% $56.15 14.7x

DuPont $3.45 +6% $46.46 13.5x

Rohm and Haas $3.87 +13% $53.98 13.9x

Hercules $1.70 +15% $18.55 10.9x

Albemarle $2.75 +15% $40.15 14.6x

Source: Yahoo! Finance*Prices as of close of 2/20/08** Based on estimated 2008 EPS

US Petrochemical CycleUS Petrochemical Cycle

Source: Probe Economics, Inc.

Why the Peak Never Came in 2003

Why the Peak Never Came in 2003

peak to occur in 2002 or 2003, and be predominantly monomer driver. By this time NOVA

Chemicals will have approximately 2.5 times the polymer production capacity we had in1995.

construction and acquisition, has been timed to take full advantage of the expected

Many analysts expect the next

Our growth, through

peak in the earnings cycle.

Source: Nova Chemicals

2003 – A Peak in Pessimism2003 – A Peak in Pessimism

“In the previous ethylene trough of 1991 to 1992 and the

peak of 1995 to 1996, US chemicals have been fortunate enough to enjoy a favorable oil

to natural gas price ratio. Those lucky days seem to

have gone. Higher ethylene feedstocks could mean that

cash margins at the next cyclical peak are lower than in

previous peaks.”

June 2003

“In the previous ethylene trough of 1991 to 1992 and the

peak of 1995 to 1996, US chemicals have been fortunate enough to enjoy a favorable oil

to natural gas price ratio. Those lucky days seem to

have gone. Higher ethylene feedstocks could mean that

cash margins at the next cyclical peak are lower than in

previous peaks.”

June 2003

“The US is the highest cost ethylene producing region

in the world at current natural gas price levels.

Directionally, we expect the North American

petrochemicals industry to become a high-cost

globally uncompetitive producer serving a large

local market.”

June 2003

0

10

20

30

40

50

60

Jan-0

3

Mar

-03

May

-03

Jul-0

3

Sep-0

3

Nov-0

3

Jan-0

4

Mar

-04

May

-04

Jul-0

4

Sep-0

4

Nov-0

4

Jan-0

5

Mar

-05

May

-05

Jul-0

5

Sep-0

5

Source: Yahoo! Finance

Ultra-Bearish Forecasts

Jun 2003

Ultra-Bearish Forecasts

Jun 2003

Nova Chemicals (NCX)Nova Chemicals (NCX)

Capital Spending as % of Depreciation

Major/Commodity Chemicals

Capital Spending as % of Depreciation

Major/Commodity Chemicals

Source: ICIS Chemical Business

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1H2007

Dow Chemical DuPont Eastman Solutia Nova Lyondell Georgia Gulf

Why a Crushing Downturn is Unlikely

Why a Crushing Downturn is Unlikely

North American producers have vowed never to build new local capacity

High natural gas prices – no reason to build

Strong balance sheets

Weak US dollar

Runway on the DollarRunway on the Dollar

Export to ProsperityExport to Prosperity

US chemical exports up 14% to $154bn in 2007

US chemical trade deficit shrinks from $7.7bn to just $1bn in 2007

Ex pharma, trade surplus nearly doubles to $19.2bn

CompanyNet DebtEnd 2000

Debt/Capital2000

Net DebtEnd 2007

Debt/Capital 2007

Dow $6.2bn 40% $8.0bn 29%

DuPont $8.3bn 38% $5.9bn 35%

Eastman* $1.9bn 51% $688m 24%

Nova $1.5bn 43% $1.7bn 60%

Rohm and Haas*

$3.7bn 50% $1.9bn 32%

Ready to Weather a Storm?Ready to Weather a Storm?

*As of Q3 2007Source: SEC Filings, ICIS Chemical Business

Predictions 2008Predictions 2008

No US recession, but growth slowdown

Commodity chemical companies will post surprisingly solid profits as the downcycle is delayed again. Stock prices will rise

Specialty chemical firms to continue earnings momentum. Stock prices to rise

Mergers and AcquisitionsWhat’s Next After the Credit

Crisis?

Mergers and AcquisitionsWhat’s Next After the Credit

Crisis?

2007 – A Record Year2007 – A Record Year

Source: Young & Partners

Global Chemical M&A

bn

Mega Deals 2007Mega Deals 2007

BuyerBuyer TargetTarget PricePrice

Akzo Nobel ICI $16bn

SABIC GE Plastics $12bn

Basell (Access Industries) Lyondell Chemical $13bn

Hexion Specialty Chemicals (Apollo Management)

Huntsman $6.5bn

PPG Industries SigmaKalon $3bn

Source: ICIS Chemical Business

28% of total number of deals versus 15% in 2006

36% of dollar volume vs. 17% in 2006

High leverage with low rate, covenant-lite debt

Banks and debt holders take the big risk

Private Equity Revival1H 2007

Private Equity Revival1H 2007

Source: Young & Partners, ICIS Chemical Business

Credit crisis has slammed the brakes on mega deals

Credit markets recovering, but very slowly in the high yield market

All quiet on the bond front

2H 2007: Bonds Shoot Blanks

2H 2007: Bonds Shoot Blanks

POP!

Rohm and Haas $1bn (Sept 2007)Investment grade

SABIC Innovative Plastics $9.2bn (Aug 2007)Special situation – banks want relationship

with Saudi government

Debt Offerings – Where Art Thou?

Debt Offerings – Where Art Thou?

Ticking Time BombTicking Time Bomb

LyondellBasellDeal completed using $8bn in interim

financingFinancing agreement stipulates that the

interest rate will rise by 0.5% every 3 months, starting in May 2008

Apollo (Hexion)/HuntsmanExtended agreement with Huntsman

stipulates that the purchase price of $6.5bn will rise by a rate of 8% annually starting on July 4, 2008

SHOW ME THE MONEY!SHOW ME THE MONEY!

Solutia sues Citigroup, Goldman Sachs and Deutsche Bank for failing to come up with $2bn in exit financing

Banks say debt market conditions have materially changed

M&A OutlookM&A Outlook

M&A to slow in 2008

Private equity buyouts put on hold

Strategic buyers with strong balance sheets in prime position

Mid-market deals under $500m remain strong

Middle Eastern and Asian companies to continue to seek deals in the US and Europe

Thank You!Thank You!

Global Editor

360 Park Avenue SouthNew York, NY 10010

T: (212) 791-4224E: joseph.chang@icis.com

JOSEPH CHANGJOSEPH CHANG