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Huntsman Seen for Sale With Celanese as Cheap Takeover: Real M&A

Huntsman Seen for Sale With Celanese as Cheap Takeover
A Huntsman Corp. facility stands in Jefferson County, Texas. Source: Huntsman Corp./via Bloomberg

Huntsman Corp. and Celanese Corp. are turning into the cheapest takeover targets in the U.S. chemicals industry as signs grow that a strengthening economy will boost demand for paint ingredients and building insulation.

Huntsman, the titanium-dioxide maker founded by the father of former Republican presidential candidate Jon Huntsman Jr., yesterday traded at 6.7 times estimated 2012 earnings, the lowest valuation among 29 U.S. basic and diversified chemicals companies with market values of more than $1 billion, according to data compiled by Bloomberg. Celanese, the world’s biggest producer of acetic acid, was the second-cheapest, at 10.1 times.

With U.S. economic growth accelerating at the fastest pace in 18 months and confidence among U.S. homebuilders climbing to a four-year high, analysts are projecting Huntsman and Celanese will both post record sales this year, data compiled by Bloomberg show. After Eastman Chemical Co. agreed last week to pay the U.S. industry’s highest sales multiple in eight years to buy Solutia Inc., Huntsman and Celanese may now attract takeover offers at least 40 percent above yesterday’s share prices, according to Alembic Global Advisors.

“Huntsman is at a very attractive valuation,” Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma, said in a telephone interview. “Chemicals have always been an economic play. If you think the recovery is in its infancy, then chemical investments could be a home run.”

Kurt Ogden, a spokesman at Salt Lake City-based Huntsman, and Linda Beheler of Dallas-based Celanese, declined to comment on whether the companies were considering a sale.

Styrofoam Clamshells

Huntsman advanced to a five-month high, climbing 5.3 percent to $13.41 a share in New York. The gain was the third-biggest among 76 companies in the Russell 1000 Materials & Processing Index. Celanese rose 3.7 percent to $50.50.

Huntsman was founded in 1982 by its 74-year-old chairman, Jon Huntsman Sr., who helped invent the plastic egg carton and the Styrofoam clamshell boxes used by McDonald’s Corp. to package its Big Mac sandwiches. His eldest son, also named Jon, was Huntsman’s vice chairman from 1993 to 2001.

The 51-year-old former ambassador to China and governor of Utah sold his individual stake when Huntsman went public in 2005. The Huntsman family and its foundation still control about 19 percent of the company, which gets almost 40 percent of sales from polyurethane products such as foam insulation and resins for composite wood panels, data compiled by Bloomberg show.

Apollo LBO

Once worth $7.3 billion, Huntsman lost more than half its value in less than five years as the financial crisis scuttled a $9.8 billion leveraged buyout by Apollo Global Management LLC announced in 2007 and cut operating income 65 percent in 2008.

In August, Huntsman plunged 31 percent after reporting second-quarter profit that fell short of analysts’ estimates as it made less money selling adhesives and fuel additives.

After ending at $12.73 a share yesterday, Huntsman was valued at $3.03 billion, or 6.7 times analysts’ estimates for $455 million in profit this year, data compiled by Bloomberg show. That was about half the average of 13.7 times earnings for comparable basic and diversified U.S. chemical companies.

Huntsman, which analysts say will also post sales of $11.7 billion this year, was valued at a 72 percent discount to revenue, the data show.

“There’s more to the company than the share price is showing, but it can’t be realized without something changing,” Charles Neivert, a New York-based analyst at Dahlman Rose & Co., said in a telephone interview.

Relative Value

Celanese, which fell as much as 45 percent from a record in July on speculation a weakening global economy would damp demand, has since recovered more than half the decline on signs a U.S. recovery may be gaining momentum.

While the maker of acid used to produce paints, cigarette filters and playing cards is now projected to post record sales this year and next, Celanese still traded at 10.1 times estimated 2012 profit, less than any chemical maker except Huntsman. Based on next year’s projected earnings, Celanese was also the second cheapest, data compiled by Bloomberg show.

Huntsman may attract BASF SE or Saudi Basic Industries Corp., the world’s two largest chemical makers, which would increase their share of U.S. sales as growth in the world’s largest economy accelerates, Longbow’s Dollarhide said.

U.S. gross domestic product climbed at a 2.8 percent annual rate in the last three months of last year, the fastest pace since the second quarter of 2010. The National Association of Home Builders/Wells Fargo gauge of U.S. homebuilder confidence last month exceeded economists’ forecasts, reaching the highest level since June 2007 as all four U.S. regions improved.

Potential Acquirers

Celanese could generate interest from Sabic, as Saudi Basic Industries is known, and LyondellBasell Industries NV, as a slide in natural gas prices to a 10-year low boosts profit, said Hassan Ahmed, an analyst at Alembic Global Advisors in New York.

Huntsman and Celanese sell chemicals that are made from oil or gas, and lower natural gas costs in the U.S. give domestic producers an advantage.

“If I were outside the U.S. and I’m seeing the trends that are prevalent these days, even if I already have a presence I’d want to bulk up,” Ahmed said in a telephone interview. “A whole host of chemical companies in the U.S. are still very cheaply valued and will benefit for several years from low natural gas prices.”

John C. Schmidt, a spokesman for Ludwigshafen, Germany-based BASF, and David Harpole, a spokesman for Rotterdam-based LyondellBasell, declined to comment on whether the companies are considering an acquisition.

Takeout Price

Jose Ramon Tarazona, a spokesman at Riyadh-based Sabic, didn’t immediately respond to an e-mail seeking comment outside normal business hours.

Buyers may be willing to pay as much as $24 a share for Huntsman, according to Alembic Global. That’s 89 percent more than its price yesterday. Celanese may be valued at $70 a share in a takeover, or a 44 percent premium, Alembic Global said.

Westlake Chemical Corp. and Eastman Chemical both offered premiums of 50 percent in chemical deals worth more than $6 billion combined last month, data compiled by Bloomberg show.

Westlake, the Houston-based plastics maker controlled by the Chao family, on Jan. 13 made a $1.68 billion bid for Atlanta-based Georgia Gulf Corp., North America’s largest maker of vinyl construction products. Westlake said today that Georgia Gulf had rejected a second offer that was increased by 17 percent to $35 a share.

Hot Chemicals

Eastman Chemical, the biggest U.S. producer of chemicals from coal, agreed to buy St. Louis-based Solutia Inc. on Jan. 27 for $4.5 billion to expand in materials for tires and in films used in iPads. The offer from Kingsport, Tennessee-based Eastman Chemical valued Solutia at 2.2 times sales, the highest multiple for U.S. chemical makers worth at least $2 billion since 2003, according to data compiled by Bloomberg.

Any economic slowdown could dissuade potential acquirers from pursuing Huntsman or Celanese, according to Mike Ritzenthaler, a Minneapolis-based analyst at Piper Jaffray Cos. Both chemical makers have more debt relative to equity than any of their rivals, which could also deter buyers, he said.

Mark Demos, a Minneapolis-based manager at Fifth Third Asset Management, says he’s optimistic a recovery in the U.S. economy will make chemical makers more attractive and that Celanese and Huntsman would make sense as takeover candidates.

“Chemicals in general are hot,” Demos said in a telephone interview. That’s because “people feel better that global economic growth is going to be OK,” he said.

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