Huntsman's $6.4 Billion Deal With Clariant Caps Eight-Year Itch

(Bloomberg) -- When Peter Huntsman met early last month with Hariolf Kottmann, the leaders of Huntsman Corp. and Clariant AG quickly realized obstacles that had kept the chemical companies from merging for years had evaporated.

“It didn’t happen sooner because Clariant and Huntsman both have been in perpetual acquisition or divestiture or restructuring modes, and it’s tough to pin down a moving target,” Huntsman, the chief executive officer of the company his father founded, said in an interview Monday. “When we both sat down, we realized all those reasons in the past that were before us are no longer here today.”

Clariant agreed to buy Huntsman for about $6.4 billion in stock, extending a record run of consolidation in the global chemicals industry. That wave of deals -- including Dow Chemical Co.’s impending merger with DuPont Co. -- strengthened the position of Clariant’s and Huntsman’s competitors, pressuring profit and leading to asset sales and plant closures.

Huntsman, 54, said he had spoken with Kottmann, 61, about a possible deal since he became CEO of the Swiss chemical maker eight years ago. When they revisited the topic last month, they realized the companies were trading at comparable market values and wrapping up restructuring plans, so they discussed who would be CEO, who would be chairman, where the headquarters would be and how the board would be composed.

‘CEO-to-CEO’

“Those are the kinds of things you need to get done CEO-to-CEO before you ever get your management teams together,” Huntsman said. “If the two of us could get beyond our own personal questions and desires, we could put together a deal here. And we did.”

Kottmann said on a conference call that it wasn’t necessary to insist on being CEO, which pushed the talks ahead. Since taking the helm of Clariant, he had resisted takeover overtures from rivals. Two years ago, the Muttenz, Switzerland-based company was the target of an approach from Evonik Industries AG.

Huntsman will be CEO at the new HuntsmanClariant, with a board evenly split with representatives from each company. Kottmann will become chairman, while Huntsman founder and chairman Jon Huntsman will serve as chairman emeritus.

Clariant’s stock rose 3.5 percent to close at 21.59 francs in Zurich. That put the stock up 23 percent this year, giving the company a market value of 7.2 billion francs ($7.4 billion). Huntsman was little changed at $26.48 at 1:19 p.m. in New York, valuing the company at $6.3 billion.

Cost Savings

The companies’ managers began working on the deal’s details about three weeks ago and finished a half week ago, Peter Huntsman said. The companies envision about $400 million in annual cost savings from the combination.

There is little overlap between the companies’ products and many complementary offerings, Peter Huntsman said. For example, HuntsmanClariant will be able to provide automakers such as BMW AG with a wider suite of products, from polyurethane seat cushions to coatings and fluids, he said.

“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. A Swiss base also provides $25 million of annual tax benefits, he said.

Huntsman holders will get 1.2196 shares in the new company for each share they own, with Clariant emerging with a 52 percent stake, the two companies said in a statement.

Going Public

Jon Huntsman has sought a large transaction since taking the company public in 2005. In March he said the company was considering a major deal following the midyear separation of its paint-pigments business.

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

The new company’s global headquarters will be at Pratteln, Switzerland, and its operational center will be in The Woodlands, Texas, where Peter Huntsman is based. The stock will be listed on the Six Swiss Exchange and the New York Stock Exchange.

The chances are “high” that 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 defensive, the note said.

“We never felt or saw ourselves as a takeover candidate,” Kottmann said on the 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.”

--With assistance from Matthew Monks

To contact the reporters on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net, Alice Baghdjian in Zurich at abaghdjian@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson, Bruce Rule

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