Huntsman and Clariant top executives have reiterated in recent meetings that their planned $20 billion merger remains on track, despite opposition from activist investor White Tale Holdings.
White Tale, which says the deal goes against Clariant’s stated focus on specialty over commodity chemicals, has accumulated a stake of just over 10% in Clariant.
The vast majority of Clariant’s shareholders support the planned merger, Peter Huntsman, Huntsman’s CEO, told the Swiss Sunday newspaper NZZ am Sonntag. “I have met between 150 and 200 shareholders in groups and in individual talks and explained the details of the merger to them,” Peter Huntsman said. “The large majority stand behind us.” Huntsman told the newspaper that a merger was needed to save costs and enable the companies to compete with Chinese and Indian rivals. “Consolidation in the chemicals industry will continue and the environment is getting tougher. There is a risk of being crushed by the competition,” he said.
A representative of White Tale said Clariant should be split up to maximize investor value, telling the Swiss newspaper SonntagsZeitung that several parties were interested in the plastics and coatings division. Clariant moved its plastics and coatings operation into a separate subsidiary in 2015, inviting speculation about the business’s future. The business, which includes masterbatches, additives, and pigments, is the largest of Clariant’s business units.
Huntsman and Clariant met with White Tale recently and said that discussions were constructive. However, analysts believe there is still a real chance that the merger will be blocked. Bernstein analysts, for instance, give it a 60% probability of it being completed. Bernstein and other sell-side institutions recently met top Clariant executives for an update on the process. “Clariant management made it clear that there is ‘no plan B’. White Tale has also brought ‘no new ideas’ to Clariant management. If the deal gets blocked, we expect pressure on the supervisory board, an accelerated strategic review of plastics and coatings, and further cost-cutting initiatives within the stand-alone business.“
Noting that 66% of Clariant shareholders need to approve the deal, Bernstein says that, based on the average attendance at Clariant AGMs over the last three year, White Tale will likely require about 20% of share capital either directly or indirectly at the upcoming EGM to block it. “With some support from certain existing shareholders, we think White Tale would need to increase its stake in Clariant by another 5% to stop the merger,” it said. Increasing the White Tale holding to greater than 10% also permits White Tale to request the board to convene a general meeting and/or add an item to the agenda, “which presumably would be looking to change the composition of the supervisory board and derail the proposed merger. It also provides the possibility to frustrate the deal in a squeezing-out scenario as shareholders greater than 10% cannot be squeezed out under Swiss Law,” Bernstein says in a recent note.
Last month, Bernstein encouraged the companies not to proceed with the merger. “We believe the combined group is poised for further, significant portfolio moves, which will lead to increased risk for shareholders. Our deep dive into the new HuntsmanClariant illustrates how a merger will not generate enough value and is fraught with risk.” Should the merger go through, “we estimate that half the combined group’s EBITDA could be up for sale, generating about $10 billion of proceeds,” the analysts say. “It’s a seller’s market but the tide is turning. After the IPO of Huntsman’s TiO2 business, the underperforming textile effects division [Huntsman], plastic and coatings [Clariant], and peak-of-cycle polyurethanes [Huntsman] could come under strategic scrutiny.”
Bernstein says a merged HuntsmanClariant would likely seek further transformational acquisitions. “Post-[likely] divestments, the balance sheet would be strong. With $11 billion fire-power, before any equity issuance, management is likely [to consider companies such as] Ashland, W.R. Grace, Croda, Elementis, the legacy Rohm & Haas business, as well as AkzoNobel’s surfactants segment,” the analysts say. “They are all attractive, albeit expensive targets, with a strong operational overlap and low anti-trust hurdles.”
By Natasha Alperowicz
Source: Chemical Week
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