Swiss Clariant engaged in ‘positive’ dialogue with activist investor – CEO

Interview article by Jonathan Lopez

LONDON (ICIS)–Clariant is actively engaging with activist investors who are sceptical about the company’s plans to merge with US chemical peer Huntsman as more synergies are quantified in the negotiations taking place, the CEO and the CFO at the Switzerland-headquartered chemical company said this week.

Clariant’s CEO, Hariolf Kottmann, said dialogue with White Tale, an investment fund which represents shareholders with a recently increased stake at the company of 10%, is “positive and constructive” and expressed confidence it would get on board the merger plans.

The two chemical companies announced in May their intention to merge in an all-stock deal which would create an entity with annual sales of around $20bn, to be called HuntsmanClariant.

According to Kottmann, the plans to merge both companies are in full swing: weekly meetings are being held in the US or Europe and more than 100 people from each company are working on the transaction.

“We have a new investor with 10.06% of [the company’s] shares and we take this investor seriously, like any other investor who may hold a 5%, a 3% or a 1% stake,” said the CEO.

“And we have established a positive and constructive dialogue with these [activist] investors.”

Kottmann’s peer at Huntsman, Peter Huntsman, said on 27 July there was “virtual unanimous agreement” among shareholders to go ahead with the merger, showing confidence the deal would close in December or January.

According to some European chemical analysts, White Tale increased its stake to over 10% earlier this month in order to have a say in Clariant’s decision-making processes. The fund believes that a higher return would be achieved from a direct of sale Clariant to an interested buyer rather than a merger with Huntsman.

Kottmann denied HuntsmanClariant would become more of a commodity-based chemical company, instead of the specialty chemicals player Clariant has for years been aiming to become.

The CEO said that while some commodity-based divisions post-merger – mostly, Clariant’s plastics and coatings and Huntsman’s textiles effects – would account for 25% of the business, the remaining 75% would come from divisions set to greatly increase profit margins.

“The new portfolio, if organised and structured well, and if the business is well understood, will have a 25% of business managed [to obtain healthy] cash flows and 75% to obtain growth in profit margins,” said Kottmann.

Among the more specialty divisions post merger, he mentioned catalysis, advanced materials, performance products, care chemicals, polyurethanes (PU) and natural resources, which serves the mining and oil and gas production processes.

“Before you criticise something, you have to structure [the new entity] and go into the details. It’s not true we are coming back to a commodity-based business. In our current portfolio we have commodity products as well.

“If you analyse the value chain form ethylene via ethylene oxide [EO], downstream and into specialities, the first part of the value chain is pure commodity.”

Analysts have also highlighted how the initial $400m/year synergies first contemplated would not go far enough, which prompted the two companies to embark on campaigns to convince investors and analysts the figure could go higher once negotiations started.

In May, Clariant’s CFO Patrick Jany (pictured right) said in an interview with ICIS that the figure would grow once the two companies’ teams met to analyse potential savings and synergy measures, as well as potential growth in combined sales.

Jany said this week the $400m/year in synergies would be implemented “the day after the merger” and added that the two companies now expected an additional $25m/year in tax savings and growth of around 2%/year.

He added that the two firms had come to the conclusion that, post merger, the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin would stand at 20%.

EBITDA margin is a recurrent financial used metric to illustrate a company’s strength; within the chemical industry, a 20% EBITDA margin is considered high.

This week, the European chemical industry was struck by an announcement from the EU’s executive body, the European Commision, of a series of anti-trust inspections in May of several ethylene buyers.

Clariant and US headquartered chemical producer Celanese have so far been the only two chemical companies to publicly state they were part of the inspection.

“We had no information to make public [in May], and only when the Commisson published its statement could we publish ours,” said Kottmann.

“There was an investigation, that was all we knew, but we didn’t know the content and we said we would support the Commisionm, which asked us not to communicate anything about this.

“We have anti-trust policies in the company and we are training our people in detail and extensively when it comes to these issues.”

Pictured above: Clariant’s CEO at the firm’s annual results presentation in Zurich in February
Source: Jonathan Lopez/ICIS