German chemicals distributor Brenntag has pulled out of discussions to potentially acquire US rival Univar Solutions. This most recent development sees the company terminate the preliminary buyout talks just a few weeks after declaring an interest and making waves about a possible mega-merger.
In late November 2022, Brenntag confirmed the possibilities of a deal in global chemical distribution after it held preliminary discussions with Univar Solutions over a potential acquisition.
Brenntag, a key player in global chemical and ingredient distribution, saw its shares jump by almost 6% following an official announcement late yesterday (January 2) afternoon that it has halted talks with Illinois-headquartered Univar Solutions.
Shares in the company had sharply fallen following the initial November announcement.
Both companies remain guarded over specific details of why the talks broke down. However, during the latter part of 2022, there was growing speculation that the possible combination of the two companies would lead to a lengthy and difficult antitrust review as well as concerns over empire building.
“Further to the announcement from 25 November 2022, confirming early-stage discussions with Univar Solutions regarding a potential acquisition of Univar Solutions by Brenntag, Brenntag has decided it is no longer proceeding with those discussions,” says the statement sent to FoodIngredientsFirst.
Univar Solutions’ statement also confirms that Brenntag has ended its discussions with the company about a potential transaction. “The company and its Board of Directors are committed to acting in the best interest of its stockholders and will continue discussions relating to other indications of interest that have been received with respect to a potential transaction. There can be no assurance that the ongoing process will result in any transaction.”
Activist investor advice
On December 20, 2022, PrimeStone Capital LLP – which owns 2% of the issued share capital of Brenntag SE and declares itself to be focused on making long-term investments in quality companies that can be improved and expanded, particularly in the chemicals distribution space – expressed its “strong opposition to the acquisition of Univar” and its desire to “refocus on improving Brenntag itself.”
PrimeStone also suggested that Brenntag separate into two distinct listed companies.
Currently, Brenntag’s Specialties division serves industries such as nutrition, pharmaceuticals and household products, while the Essentials division is a wholesale business for processed chemicals.
“We believe Brenntag to be a high-quality company comprising two different businesses that can be significantly improved and expanded after years of modest performance. We have had constructive meetings with management so far and have appreciated the accessibility, transparency and open mindedness shown toward our suggestions,” it said in a public letter sent to the Supervisory Board of Directors and management of Brenntag.
What happens next for Brenntag?
Brenntag’s chief executive Christian Kohlpain has previously stated that the key player in global chemical and ingredient distribution is eyeing mergers and acquisitions, looking to double annual spending in this direction.
“Brenntag sees strategic mergers and acquisitions as an enabler of future growth and thus will double the annual planned M&A spend to around €400 to €500 million (US$419 to US$524 million),” he said in November 2022 while highlighting Brenntag’s growth strategy plans and targets for 2026.
However, other recommendations from PrimeStone in its public letter included avoiding the “risks and uncertainties” of an empire building transaction and examining a potential share buy-back program “to return to an efficient balance sheet.”
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