Clariant and Huntsman nix $20 billion deal

Relenting to pressure from activist shareholders, Clariant and Huntsman Corporation have dropped their plans to combine into the world’s second-largest specialty chemicals company with annual sales of some $13 billion.

The two firms—Clariant from Switzerland and Huntsman from the U.S.—announced the agreement in May. Valued at about $20 billion, the merger of equals was intended to create a larger company better positioned to compete in specialty chemicals, expand profits, and reduce costs. The companies promised annual cost savings of $400 million.

But a pair of investors in Clariant, who combined their stakes to form White Tale Holdings, stood against the transaction. They contended that the deal undervalues Clariant and is a “complete reversal of the company’s long-standing strategy to become a pure-play specialty chemicals company.” Even though Huntsman had recently spun off its titanium dioxide pigments business, White Tale viewed the U.S. firm as less of a specialized chemical maker than Clariant.The activist investors recommended that instead of merging with Huntsman, Clariant should instead sell its plastics and coatings business, turning it into a company focused solely on specialty chemicals, one that could pursue other alternatives.

White Tale has meanwhile been strengthening its position in Clariant. In July, it disclosed it had bought shares to raise its stake in Clariant to 7.2%. By September, White Tale’s holdings were up to 15%. By the time Clariant and Huntsman dropped the merger, White Tale’s interest was in excess of 20% and other investors were joining the revolt.

Clariant and Huntsman now say they will continue on their separate courses. “We remain convinced that the proposed merger of equals as agreed to on May 21, 2017, would have been in the long-term best interests of all of our shareholders,” the CEOs of the two firms said in a joint statement. However, they acknowledged that Clariant might not have been able to secure approval for the merger from two-thirds of its shareholders, as required under Swiss law.

Clariant says it will continue on its own path to becoming a top-tier specialty chemicals company. Likewise, Huntsman CEO Peter Huntsman argues that the merger “is not the only option for Huntsman to create real and lasting value.” He says the company will focus on expanding its specialty chemicals business through organic growth and “bolt-on” acquisitions.

The original agreement called for Clariant to pay Huntsman $210 million if it backed out of the deal. However, since the firms mutually decided to call it off, no payment will be made.