Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

The stars have aligned for another big transatlantic chemical deal. Huntsman Corp., the U.S. specialty chemicals group, has outperformed its Swiss peer Clariant AG over the last eight months and narrowed the gap in their market capitalizations. That's enabled the pair to concoct a so-called merger of equals.

As is typical in such unions, awkward governance is the price being paid for considerable financial gains.

Now's The Time
Shares of Huntsman have outperformed Clariant lately, creating favorable conditions for a deal
Source: Bloomberg

The plan is to crunch the two together at last week's market values, with neither side receiving a takeover premium. Clariant enters the tie-up with higher margins, a stronger balance sheet and a punchier valuation. It's willing to dilute this for the sake of better access to the U.S. market and sharing in a big cost-cutting opportunity.

Annual savings of $400 million are generously valued by the pair at $3.5 billion upfront, or 26 percent on the combined $13.5 billion undisturbed market capitalization. That looks punchy. On a conservative basis, something closer to $3 billion seems more plausible.

Debt to Friendship
Combining with Clariant will help Huntsman cut its net debt to Ebitda
Source: Company presentation
Note: Net debt 2016 to Adj. Ebitda 2016

The gains will be shared pro-rata between the two sets of shareholders, with Clariant investors owning 52 of the enlarged company, in line with the relative values of the two last week. Clariant stock was up 8 percent was on Monday, pricing in nearly one-third of its share of the touted upside.

For Huntsman, the cost savings are just as big a draw. But the deal with Clariant also reduces leverage, while being part of a larger, more liquid group would make it easy for the founding Huntsman family to sell out if they wanted.

Strategically, it's hard to see this deal radically improving either side's investment case. Still, there's no denying the financial benefits. The risk of antitrust hurdles is modest, according to Bernstein research.

The Right Chemistry
Clariant and Huntsman predict stronger Ebitda margins as a combined company
Source: Company presentation

The predictable downside is that shareholders must swallow an ambitious governance arrangement. The corporate headquarters will be in low-tax Switzerland (though the synergy targets don't include tax benefits). Peter Huntsman, the current CEO, retains his role and moves to Switzerland. His father, founder and chairman Jon, becomes chairman emeritus. Clariant's CEO, Hariolf Kottmann, becomes chairman of the group. And the "operational" headquarters will be in the U.S.

This looks like a recipe for potentially tense decision-making. The snag is it's hard to see the deal happening on any other basis, given the relative sizes of the companies.

Ordinary shareholders of either side would probably warm to a straight cash takeover that could deliver the benefits upfront without the governance experiment. An interloper may think hard before gatecrashing a deal with this scale of value creation plus the support of core family shareholders on both sides. But a marriage here is by no means certain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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