Timing was ripe for HuntsmanClariant merger of equals – CEOs
Nigel Davis
22-May-2017
Focus article by Nigel Davis and
Joseph Chang
NEW YORK (ICIS)–The time was ripe to strike a merger of
equals now, with two global specialty chemical companies well
into their portfolio transformation plans shedding
commoditised assets, with similar goals and valuation
multiples, the CEOs of Huntsman and Clariant said on
Monday.
“Opportunities like this are tough to come
by,” said Huntsman president and CEO Peter Huntsman on the
merger conference call.
“The timing is right, the equity values
are right – we need to strike at these sort of times,” he
added.
Peter Huntsman and Clariant CEO Hariolf
Kottmann had been talking about the possibilities of closer
cooperation for eight years but during that period at one
time or another, one or both companies were going through
major restructurings, acquisitions or divestitures, Huntsman
said.
A deal only started to come together about
three weeks ago, he added.
There is little product overlap, but
rather complementary products serving many of the same
industries such as automotive, aerospace and personal care
through different platforms, said Huntsman.
The combined companies might be expected
to grow possibly 1% to 2% per year faster than either firm
could do individually, he added.
“Both companies were not under pressure to
do something – not desperately looking for someone to merge
with,” said Kottmann.
Clariant decided to combine with a company
with similar objectives to reach a new level of capabilities
and growth, he added.
The new company, to be named
HuntsmanClariant, will have an enterprise value (EV) of about
$20bn based on equity prices before the announcement, and
sales of about $13.2bn and earnings before interest, tax,
depreciation and amortisation (EBITDA) of $1.88bn based on
2016 figures. The EBITDA margin pre-synergy is 14.2%.
It would be tied with Germany’s Covestro
for the second largest pure-play specialty chemical company
in the world behind Germany-based Evonik, according to the
companies.
Synergies, from operational efficiencies
and procurement, are projected at $400m/year within two years
of closing which is expected by the end of 2017. Including
synergies, HuntsmanClariant would have pro forma 2016 EBITDA
of $2.28bn and an EBITDA margin of 17.2%.
One area of integration is in Huntsman’s
strength in ethylene oxide (EO) production, which Clariant
uses further downstream for personal care and other
products.
The combination will give Clariant
products an increased sales base in North America and the
opportunity to expand Huntsman formulation expertise
downstream.
The companies expect to expand products
into adjacent markets and add broadened end-market exposure
through the transaction, they said.
The companies believe that, over the next
five to 10 years, the global specialty chemical industry will
be dominated by six to eight companies with annual sales in
the $14-17bn range.
Globalisation and size were clearly
drivers, as well as formulations technology, balance sheet
considerations and the enhanced ability to move further
downstream.
The advanced scale of the combined
companies can be mobilised to enhance growth for all
stakeholders, said Kottmann. The larger sales base will
reduce cyclicality and provide a larger platform for growth,
he added.
“We are convinced that the merger of our
two companies will enable us to realise additional margin
enhancing opportunities,” he said.
Polyurethanes (PU), coming from the
Huntsman side, will be the largest segment of the combined
company, comprising 28% of sales and 26% of EBITDA based on
2016 figures. They expect an annual growth rate of 6-9% in PU
with EBITDA margins in the 16-18% range.
Huntsman chief financial officer Kimo
Esplin expects continued margin expansion in PU from 15-16%
in recent quarters, towards the 16-18% target for the next 3
years.
Polymeric MDI volumes are growing at
around 7%/year, driven by insulation requirements globally,
Esplin said.
HuntsmanClariant will operate in more than
200 production locations. Combined research and development
(R&D) spending is $350m. Capital spending (CAPEX) is
$600-$650m/year with $200-$250m/year allocated to maintenance
CAPEX.
Huntsman’s plan for an initial public
offering (IPO) of its titanium dioxide (TiO2) and pigments
business Venator is still set for the summer of 2017 and will
help bring down the combined HuntsmanClariant leverage
levels.
After Venator raises around $700m in new
debt, proceeds of which will go to Huntsman, and Huntsman
divests the rest of its Venator stake post IPO in stages, the
combined HuntsmanClariant’s pro forma net debt/EVITDA ratio
would fall from 2.4x, to under 1.5x, giving it plenty of
financial flexibility for bolt-on acquisitions in the future,
Hunstman said.
Global News + ICIS Chemical Business (ICB)
See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.
Contact us
Partnering with ICIS unlocks a vision of a future you can trust and achieve. We leverage our unrivalled network of industry experts to deliver a comprehensive market view based on independent and reliable data, insight and analytics.
Contact us to learn how we can support you as you transact today and plan for tomorrow.