U.S. activists have set their sights on another lumbering, slow-moving target in Europe: Clariant AG. What took them so long?
Clariant was asking for trouble. In late May, it agreed a $20 billion merger with Huntsman Corporation of the U.S. The proposed combination has little if any strategic merit. It would dilute Clariant's specialty chemical focus with Huntsman's greater exposure to commodity chemicals. There was no premium for Clariant shareholders. The governance is a fudge that slightly favored Huntsman.
The only benefit was financial, with the duo identifying $400 million of yearly savings. If these were fully realized, they would in theory add at least 20 percent to the duo's combined market capitalization. But that's a lower boost than most takeover premiums, and will take time to arrive.
Corvex Management LP -- an activist fund led by Keith Meister, an ex-underling of corporate raider Carl Icahn -- isn't happy. Nor is 40 North, an investment group tied to privately held roofing group Standard Industries. Together they have 7 percent of Clariant.
The pair argue that Clariant didn't consider the alternatives. What's more, they reckon Clariant shares are undervalued so the deal locks in this supposed discount.
The naysayers are mostly on strong ground given the poor logic of the deal. The best that could be said for the merger is that it might smoke out counter-bids for either side. Analysts point to Evonik Industries AG and BASF SE as possible interlopers, assuming they're not deterred by the small break fee.
Rumored interest from Evonik a few years ago failed to turn into a deal. BASF might face antitrust concerns. If neither is interested, Chinese or Middle Eastern buyers would surely covet Clariant for its top-drawer industrial customer list.
A gradual selloff via a breakup looks tricky. The plastics and coatings business is seen as the poor relation. That was 37 percent of operating profit last year, so getting rid of it it would radically shrink the company and leave a bite-sized rump. Even if Clariant boss Hariolf Kottmann was willing to consider that, separation could be fiddly and impact on the rest of the group. It might be easier to make disposals as part of a larger Huntsman.
The argument that Clariant is undervalued has some force. It trades at a discount to many peers including Croda International Plc, Akzo Nobel NV and Elementis, although at a premium to BASF and Evonik -- and Huntsman. The average price target for the stock is 22.70 euros, not far off the current share price.
Right now, the Huntsman deal is the only one on the table. Still, it's not a transaction worth fighting for. An unsolicited counter-bidder for either side should be embraced.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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