Activist investors attack Clariant-Huntsman deal

Activist investors are teaming up in an effort to derail a $20 billion merger of equals, announced May 22, between Swiss specialty chemical company Clariant and U.S. chemical maker Huntsman Corp.

Corvex Management, a hedge fund, and 40 North, an investment firm, disclosed that they bought shares to raise their combined stake in Clariant to 7.2% to push the company to pursue alternatives to the Huntsman deal.

The activists say that Huntsman’s basic chemical businesses aren’t an attractive match for Clariant. In a statement quoted by Bloomberg, Corvex and 40 North say the all-stock merger undervalues Clariant and is a “complete reversal of the company’s long-standing strategy to become a pure-play specialty chemicals company.”

Clariant produces catalysts, personal care ingredients, oil and gas chemicals, and plastics and coatings. Huntsman makes advanced materials, performance products, polyurethanes, and textile effects chemicals.

Analysts say the investor dissent increases the chances that a strategic buyer will emerge to snap up Clariant and scuttle the Huntsman agreement, though a breakup would trigger a $200 million fee.

“Clariant is the number one takeover target in the sector, with a long list of interested parties,” points out Markus Mayer, an analyst at investment bank Baader Helvea, in a note to investors. Indeed, Mayer views the merger as a defense strategy by both firms to ward off takeovers.

An outright sale of Clariant is likely what the investors are aiming for, says Kevin McCarthy, chemicals analyst at Vertical Research Partners, an independent equities research firm. But McCarthy says the expected synergies of the merger, which could exceed $400 million per year, offer substantial value to the two firms.

Clariant and Huntsman want to close the merger by the end of the year. Clariant says it is in close dialogue with Corvex and 40 North and won’t publicly comment on the activists’ position.

McCarthy notes that two-thirds of Clariant shareholders must vote to approve the deal, whereas Huntsman requires only a majority vote. Meanwhile, Huntsman is working to spin off its pigments and additives business, to be called Venator Materials, this summer.