Activist Targets Clariant in Bid to Scuttle Huntsman Deal

Updated on
  • Corvex, 40 North disclose joint 7.2% stake in chemical maker
  • Huntsman deal lacks strategic rationale, U.S. investors say

Clariant AG’s planned $6.4 billion takeover of Huntsman Corp. came under attack by two U.S. investors who are pushing the Swiss chemicals maker to explore alternatives to the six-week-old transatlantic deal.

Keith Meister’s activist hedge fund Corvex Management and 40 North, the investment firm run by David Winter and David Millstone, own about 23.9 million shares, or 7.2 percent, of Clariant, the investors said in an emailed statement Tuesday. The stake is held through a company called White Tale Holdings, now Clariant’s largest single shareholder, they said.

“We believe that the proposed merger significantly undervalues Clariant’s shares and that far more value could be created for shareholders through any number of alternative transactions,” the investors said. “The proposed merger has no strategic rationale and is in fact a complete reversal of the company’s longstanding strategy of becoming a pure-play specialty chemicals company.”

Clariant shares rose 3.2 percent to 22.23 francs at 12:18 p.m. in Zurich, the highest level since May 22, giving the company a market value of 7.4 billion francs ($7.7 billion).

The move on Clariant is part of a growing wave of shareholder activism targeting European companies. Dan Loeb’s Third Point confirmed last month it’s amassed a $3.5 billion holding in Nestle SA, targeting Europe’s largest company by market value on the heels of hedge fund Elliott Management Corp.’s bruising battle to get Dutch paintmaker Akzo Nobel NV in takeover talks with a rival. Activists, which traditionally focus on the U.S., have been drawn by surging equity markets in Europe and a stronger economic backdrop.

Takeover Target

Clariant, in an emailed statement, said it has had regular contact with the two hedge fund investors after they initially bought shares in the company last year. “As with all our shareholders, we maintain an open dialogue with them,” Jochen Dubiel, Clariant’s head of corporate communications, said in the email.

The Huntsman acquisition was championed by Clariant Chief Executive Officer Hariolf Kottmann, who is earmarked to become chairman of the combined company. Clariant agreed to buy Texas-based Huntsman in an all-stock deal unveiled in May that the companies described as a merger of equals. The plan was met with a lukewarm response from shareholders as the Swiss company, which had long been cited as a target itself, had attracted investors betting on a buyout.

“Clariant is the No. 1 takeover target in the sector, with a long list of interested parties,” Baader Helvea Equity research analyst Markus Mayer said in a note. The move by the U.S. investors makes a counterbid scenario “more likely.”

Explore Options

Clariant should “fully explore all the strategic options” available to it, something that wasn’t “seriously” done before the deal with Huntsman, the U.S. investors said. “Clariant will be exchanging almost half its shares for what is primarily a commodity and intermediates business which will further dilute its multiple and create a larger conglomerate discount.”

The Huntsman deal is expected to close at the end of 2017, pending approval from investors, including the former Sued Chemie family shareholders, who together hold a 14 percent stake, according to data compiled by Bloomberg.

Corvex was formed at the end of 2010 by Meister, who previously worked for billionaire activist investor Carl Icahn. The New York-based fund has active investments in companies including Energen Corp. and Pandora Media Inc. and took new equity stakes this year in 10 companies including Facebook Inc., Praxair Inc. and Colgate-Palmolive Co., according to its latest regulatory filing.

40 North is an investment partnership affiliated with Standard Industries, a closely held company that owns roofing and waterproofing businesses. Winter and Millstone are co-CEOs of Standard and the former vice chairmen of International Specialty Products Inc., a specialty chemicals company.

Limited Overlap

Almost 600 activist campaigns have been started against U.S. companies since 2010, according to data compiled by Bloomberg, compared with fewer than 100 against targets in Europe, the Middle East and Africa.

The Clariant-Huntsman deal extended a record run of consolidation in the global chemicals industry including Dow Chemical Co.’s merger with DuPont Co. and China National Chemical Corp.’s takeover of Syngenta AG of Switzerland.

Although there’s limited overlap between the two companies, teams from Huntsman and Clariant have identified $400 million in annual cost savings that could be fully in place by the end of 2019, potentially creating $3.5 billion in value for investors, according to Clariant. Additional synergies in capital expenditure and working capital may result in an even higher number, the company said.

Creating a company with $13 billion in annual sales would make it much more relevant in the global chemical markets, according to Kepler Cheuvreux analyst Christian Faitz.

The targeted synergies are “low with positive potential later on,” he said. “Over the past few decades, we too often have seen small but beautiful companies fail.”

— With assistance by Jan-Henrik Foerster, Dinesh Nair, Eyk Henning, Manuel Baigorri, and Aaron Kirchfeld

(Adds analyst comment in last paragraph.)
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