Clariant, Huntsman merger execution risk rises ‘considerably’ – Barclays

LONDON (ICIS)–The prospect of a merger between Swiss chemical firm Clariant and US peer Huntsman is still feasible but “execution risk has risen considerably” after activist investors White Tale increased its stake at the firm, UK-based investment bank Barclays Bank said on Monday.

The two companies announced their intention to form HuntsmanClariant in May in what seemed a pretty straightforward merger within the chemical industry.

However, activist investor White Tale has recurrently increased its stake at Clariant, first in July and then in September again, taking its shareholding to 15.19%, in a move trying to stop a merger that investor always opposed.

“[The merger’s] execution risk has risen considerably and White Tale now has at least 15% of the shares, c. [circa] 10pp [percentage points] less than it needs to block the deal,” said Barclays.

However, the bank’s chemical analysts said that in a no-deal scenario, Clariant’s share would still be “treading water” on the back of Clariant’s CEO Hariolf Kottmann stance on White Tale which would show “considerable opposition” to the investor’s own plans for Clariant.

Those plans, said the analysts, would involve divesting Plastics & Coatings – which accounts for around 40% of Clariant’s sales – as well as cutting costs across the board.

“Upcoming results on 31 October are unlikely to be a major trigger, in our view, and share prices across the sector are already discounting a strong quarter. The next catalyst will be the shareholder vote in which White Tale has the opportunity to block the proposed deal if it can secure support from enough investors, although the precise timing is still unknown.”

“Until the result is known, we can’t advocate taking an active position given the binary nature of the vote and how little insight we have into the chances of success.”

On 6 October, analysts at Bernstein Research said the odds for the merger completion were diminishing by the day. It gave the merger a 40% chance of success, down from 80% in May and 60% in August,

On the upcoming third-quarter results, which Clariant will publish on 31 October, Barclays expects the strength in the petrochemical industry globally to benefit the company through a growing order book at its Catalysis division.

Meanwhile, the bank expects the higher oil prices recorded in the last weeks to have a similar impact on Natural Resources although it would also intensify the negative effect on margins in Care Chemicals, they concluded.

Clarification: Re-casts Q3 results date in paragraph 10

Pictured: Clariant CEO Hariolf Kottmann