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Clariant to buy Huntsman for $6.4 billion as chemical M&A deals surge

LiveMint logoLiveMint 22-05-2017 Jack Kaskey

Houston/Zurich: Clariant AG agreed to buy Huntsman Corp. for about $6.4 billion in stock, cementing a deal that had developed over several years and extending a record run of consolidation in the global chemicals industry.

“The combined company should have higher margins, a more specialty-chemical oriented earnings profile and lower financial leverage,” James Sheehan, an analyst at Suntrust Robinson Humphrey Inc., said in a note on Monday. A Swiss base also provides $25 million of annual tax benefits, he said.

The combined board will have equal representation from the two companies, with Clariant chief executive officer Hariolf Kottman becoming chairman and Huntsman founder and chairman Jon Huntsman serving as chairman emeritus. Huntsman chief executive officer (CEO) Peter Huntsman, the founder’s son, will hold the same position in the new HuntsmanClariant.

The combination adds to an already historic level of deals in the industry as CEOs seek to bolster tepid sales growth. Global chemical companies have more than $300 billion in mergers and acquisition planned, according to a report by AT Kearney published in March. That level is more than twice the previous all-time high set at the end of 2015, according to the management consulting firm.

Huntsman holders will get 1.2196 shares in the new company for each share they own, with Muttenz, Switzerland-based Clariant emerging with a 52% stake, the two companies said in a statement on Monday. The combination is expected to generate more than $400 million in annual cost savings, leading to $3.5 billion in value creation, they said.

The chances are “high” that another offer will emerge for Clariant, which has been the No. 1 target in the sector, a Baader Helvea analyst said in a note. The planned combination with Huntsman comes across as a defensive move, the note said.

“We never felt or saw ourselves as a takeover candidate,” Kottmann said on a conference call. “It would be very surprising to me if there were another company who could match or even top the value we are creating by merging these two companies together or that could tell a more convincing story to the market.”

Clariant’s stock rose 2.8% to 21.45 francs. That put the stock up 22% this year, giving the company a market value of 7.1 billion francs ($7.3 billion). Huntsman was little changed at $26.69, valuing the company at $6.4 billion.

“The merger will benefit Clariant as it will further expand its global footprint, in particular in strategically important US and China markets,” Vontobel analyst Victoria Kruchevska said in a note.

Asia competition

CEO Huntsman said on the call that he and Kottmann formed a rapport over the years as each undertook to overhaul his company to offset heightened competition from Asia.

Since taking the helm of Clariant in 2008, Kottmann resisted the overtures of other competitors. Two years ago, it was the target of an approach from Evonik Industries AG though talks didn’t advance since Kottmann didn’t want Clariant absorbed by a Germany-based company. He said it wasn’t necessary to insist on being chief executive in this merger scenario, and talks suddenly advanced a couple of weeks ago after years of discussion.

The breakthrough came as an unparalleled wave of deals in chemicals — including Dow Chemical Co.’s merger with DuPont Co. — strengthened the position of competitors around Clariant and Huntsman. Rivalry in both their commodity segments such as pigments and leather chemicals, meant the companies struggled with profitability, leading to asset sales, plant closures and divestments.

Dual Listings

The new entity’s global headquarters will be at Pratteln, Switzerland and its operational headquarters will be at The Woodlands, Texas. The stock will have dual listing on the Six Swiss Exchange and the New York Stock Exchange.

Jon Huntsman has sought a large transaction since taking the company public in 2005. Hexion Specialty Chemicals, then a unit of Apollo Management LP, agreed to buy Huntsman in July 2007 for $6.5 billion but withdrew the offer a year later amid declining chemical markets. Clariant was mentioned by analysts as a potential partner after Jon Huntsman in March said the company was considering a major deal following the separation of its paint-pigments business.

Citigroup and UBS AG are serving as Clariant’s financial advisers for the transaction, with Homburger, and Cleary Gottlieb Steen and Hamilton serving as its legal advisers. Bank of America Merrill Lynch and Moelis & Company LLC are Huntsman’s advisers, with Kirkland & Ellis, Bär & Karrer and Vinson & Elkins on legals. Bloomberg

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