US Huntsman, Swiss Clariant abandon merger plans

27 October 2017 11:48 Source:ICIS News

LONDON (ICIS)--US’ Huntsman and Switzerland’s Clariant have jointly abandoned plans to merge, the specialty chemical companies said on Friday.

The termination of the deal was for the best interest of all stakeholders, the companies said, adding that there will be no payment of a deal breakage fee.

Clariant shares were down 4.89% in Friday morning trading versus Thursday’s close, to Swiss francs (Swfr) 24.29 ( $24.29), as of 11:40am London time, while Huntsman shares were also losing ground in US' after-hours trading.

Clariant was originally liable to pay both a $210m deal breakage fee and a $60m fee had the extraordinary general meeting (EGM) not approve the merger, according to the original merger statement.

“Execution of merger at risk due to increased uncertainty of securing two-thirds majority by Clariant shareholders,” the Swiss producer said, as its activist investor White Tale Holdings raised its stake in Clariant to more than 20%.

Oliver Schwarz, analyst at Germany’s Warburg Research, said to ICIS that, from a merger perspective, there was little operational overlap between the two companies.

“Overhead costs of the combined entity might have been lower as a percentage of sales but there are only a few synergies easily identifiable on the operating part of the business,” said Schwarz.

The chemical analyst added that a lot of the chemicals sourced by both companies are already competitively-priced and, on top of that, some of the respective suppliers would have become competitors in other parts of the merged business.

“In a nutshell, the underlying rationale for the merger was a bit too much on the weak side to my taste,” he concluded.

The CEO at Huntsman, Peter Huntsman, said that “in light of the high level of disruption and uncertainty” that had been created for both companies, the pair had decided to stop the merger in order to stop the “substantial expenditure” of funds associated with the merger plans.

“[We have decided to] Proceed along our independent paths in the best interests of both companies and their shareholders, associates, and other stakeholders,” said Hunstman.

Clariant’s CEO Hariolf Kottmann said that “while White Tale's position on the merger has been different from ours, we share a common interest in increasing Clariant’s value”, adding that the company is committed to achieving the goal “through a continuation of our existing and successful long-term growth” strategy.

Dubbed a merger of equals, the deal announced in May between Hunstman and Clariant was to be an all-stock transaction.

"We regret the missed opportunity for value creation and thank our shareholders for their support,” Clariant chairman Rudolf Wehrli said.

German investment bank Baader Bank believed the merger had never represented the best value-enhancing option for Clariant shareholders, according to its chemical analyst Markus Mayer.

“From a chemicals perspective, the merger only made limited sense, with an overlap of only around 10-25% of combined sales,” Mayer said.

“Therefore, we interpreted the step as a defence strategy to prevent CLN [Clariant] from becoming a (hostile) takeover target. Now Clariant is again the number 1 takeover target among EU chemicals.”

Baader Bank kept its 'Hold' recommendation on Clarian't stock, forecasting a 12-month share price of Swfr25.

UK-based Barclays Bank, meanwhile, issued a Swfr22 share price target, while keeping its 'Neutral' recommendation on the stock.

"We now believe the outlook for Clariant shares has become less certain... We know [Clariant's] CEO Kottmann has been deliberating on possible long-term solutions for Plastics & Coatings [division] since the business was legally separated on 1 January 2016. However, we also believe selling the division without an immediate route to re-investment would leave Clariant susceptible to unsolicited take-out proposals; an eventuality that Kottmann is keen to avoid," said Barclays.

"Clariant’s share price performance is likely to hinge on how credible White Tale’s proposals are perceived by the market. We note particularly that Clariant’s press release talks about ‘continuation of our existing… strategy’ which suggests any dramatic decisions are not imminent."

(Update adds detail and analyst comment throughout)

($1 = Swfr1)

Additional reporting by Pearl Bantillo

Pictured above: Clariant and Huntsman's CEOs announcing their intended merger in May
Source: Clariant

By Niall Swan