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TWST: Please begin by telling us about the way that you look at this very heterogeneous group. What approach do you take to the specialty chemicals?

Mr. Begleiter:: There are a few key framework considerations I try to apply. First, I look for hard-to-replicate franchises, companies with a real competitive advantage in technology, distribution and product breadth. I want to own companies that are number one or two in their marketplaces. Specialty chemicals is a technology industry, and innovation sells. Innovation is the only way for a company to get higher prices and to increase its market share. I want companies with technology and a great global franchise.

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TWST: And what's your third choice?

Mr. Begleiter: My third choice? H.B. Fuller (Nasdaq:FULL). It's the second-largest industrial adhesives maker in the world, behind National Starch and ahead of Henkel (HENKY). They have gone through a massive restructuring of the company: they closed a quarter of the production plants, removed a lot of the inefficiencies from the infrastructure. As a result, earnings have gone from 2.8 in 1998 to close to 4.85-4.9 this year. What the company lacks is top-line growth -- and again, that's the result of their walking away from some low-margin business as well as their exposure to Latin America, which has obviously been negative, due to the weakness down there. Plus, there's the weakness in the euro, down 15% year over year, and that's hiding some of the organic growth they're achieving. Adhesives are growing 2-2.5% globally on a volume basis. Fuller should grow two to three times that. So again, there are a lot of competitors out there, and in the adhesives business, only two or three have the global scale, the technology and the product breadth that an H.B. Fuller does. And increasingly their suppliers, like GM (NYSE:GM), like International Paper (NYSE:IP), are global, and they want to be supplied by the people with the best technology and the broadest possible product lines.
So I suspect Fuller will be gaining share at the expense of smaller regional competitors. They're building a great deal of operating leverage into their infrastructure through this really massive restructuring, and they have very high income at the margins and additional dollars of business. So I expect we'll see top-line growth reappear in the second half of the year, and that could result in earnings upside for both this year and next. At current levels, it's less than 8 times current year earnings, which is extremely inexpensive. And it has a management team that's proven its ability to dramatically restructure. The goal and the challenge is top-line growth, and I think they can meet that challenge.