Clariant board stays put as company moves on after failed Huntsman merger - CFO

27 April 2018 09:30 Source:ICIS News

LONDON (ICIS)--The collapse in 2017 of Clariant’s plan to merge with US peer Huntsman will not stop the company’s current management team from developing its strategy for coming years, now reinforced by the entrance of SABIC as its largest shareholder, the CFO at the Swiss chemical producer said this week.

Patrick Jany (pictured) stressed that the merger with Huntsman announced in May 2017 would have been a good way to take Clariant forward, but “two people” who opposed it managed to orchestrate an operation to cause its derailment.

By increasing their stake at Clariant, activist investors represented by White Tale managed to reach the necessary votes to block the merger, which was finally abandoned by both companies in October 2017.

Clariant’s tumultuous 2017 had its grand finale in January this year, when Saudi petrochemical major SABIC acquired the activist investors’ stake at the company, becoming the largest shareholder with a 25% stake.

Although SABIC never disclosed the amount it paid for the stake, several sources within the chemical industry have suggested it was around Swiss francs (Swfr) 2.0bn ($2.0bn).

The plan to merge with Huntsman was Clariant management’s star plan in 2017. Given its unsuccessful conclusion, Jany was asked whether management should concede its strategic error and give way to a new executive board.

He did not answer the question, and stressed instead that management had the obligation to stay put to develop the plans envisaged for the company, as well as safeguarding 18,000 jobs worldwide.

While some chemical analysts have pointed out that SABIC could end up being the sole owner of Clariant, taking the company private, Jany denied that was the case – at least for now.

“SABIC is very familiar with having relationships [with other companies] without controlling them: they do much more  joint ventures, so I think it [analysts’ prediction] is a bit of misinterpretation – we need to get the facts right,” he said.

“We have a clear understanding that SABIC is an anchor shareholder, which will help us develop the company further. It also has an added advantage: SABIC is not a financial investor, but a strategic one.

“What happens in 10 or 20 years, nobody knows, but certainly this is the understanding we have today.”

The two companies are due to present in September a strategy once SABIC’s stake acquisition is cleared by antitrust authorities.

Although the opposing activist investors are already out of the picture, reviving plans to merge with Huntsman is not an option at the moment, said Jany, who was adamant in highlighting that the operation had not been a failure.

“We had a 90% of the shareholders in our favour [to go ahead with merger]. Two people were against it and they happened to buy the necessary shares to block the merger. It’s a pity we couldn’t do it, but the company goes on, we have had a good first quarter and there will be other opportunities in the future,” said Jany.

“We could have not followed White Tale’s plan to dismantle the company, which would have destroyed value in the short term.”

Clariant’s management’s plans for future years include an increased presence in the US and China, with its market share in the former being “rather small”, according to Jany.

In an interview with ICIS in March on the sidelines of the American Fuel & Petrochemicals Manufacturers (AFPM) annual meeting, Clariant’s CEO for North America Deepak Parikh said the company is aiming to increase its sales in the region from the current Swfr1.3bn/year to around Swfr1.8bn/year by 2021.

The CFO, however, conceded recognised that such a growth in sales in a mature market like the US would not be an easy ride.

“The US is a big market and, although it is the fastest growing market, its sheer size and our rather small presence there makes it a priority for us,” he said.

“It [making inroads in the US] is a matter of having the right products, therefore a matter of application development being closer to our customers there. It is also a matter of people, but also of capex [capital expenditure]: we will continue to organic capital investments in the US in the right areas,” said Jany.

“It’s about the resources, and the quality of those resources, you are ready to put in the US.”

Clariant has a strong presence in the second largest country in the Americas, Brazil, which is slowly recovering from a steep economic downturn. While the economy is on the up, the political crisis persists after the impeachment of President Dilma Rousseff in 2016 and with the current head of state Michel Temer also facing corruption accusations.

“It’s not for me to comment on any political evolution on any country in the world, but we haven’t seen any major change [in Brazil’s economy] and businesses are doing well,” he said.

Overall, Latin America is now “out of the woods” and growing again, he added.

The company has also announced ambitions plans to double its sales in China from 2015 to 2021, but declined to comment on the challenges of operating in a country where legal security can be blurry, like other European chemicals companies have done, especially referring to infringements in intellectual property (IP).

“Chinese standards of living are rising year after year and environmental regulations are actually being implemented, and this all plays onto our portfolio of more sophisticated products,” he said.

“We see China as an important market and we could not leave it to our competitors – rather the opposite, we have to increase our presence there and we’ll continue to invest there," he added.

(Swfr1 = $1)

Picture source: Clariant 

Interview article by Jonathan Lopez

By Jonathan Lopez