Deal’s defeat still pays off
Shares climb for Huntsman Corp. despite demise of megamerger
After a dramatic fight with activist investors that led to the scuttling Friday of a $15 billion chemicals megamerger, Huntsman Corp. is preparing for a less dramatic, more methodical drive to grow, looking to reduce debt while still eyeing opportunities for acquisitions.
The Woodlands company and its merger partner, the Swiss company Clariant, announced early Friday that they were giving up their plan to form one of the world’s largest specialty chemicals companies because they could not overcome the opposition of Clariant’s biggest
stockholder, a partnership of two New York hedge funds.
As recently as September, Huntsman Corp.’s chief executive, Peter Huntsman, was expressing confidence that Clariant shareholders would approve the merger and the deal would get done. But earlier this month, with the hedge funds holding an unusually large stake in Clariant, the companies began to believe that the deal could fail and discussed sweetening the terms for Clariant investors.
At that point, however, the combination was becoming less beneficial to his shareholders, Peter Huntsman said, and he decided to walk away, rather than agree to a bad deal.
“Sometimes you’re going to strike out,” Huntsman said in an interview with the Chronicle. “I’d be less than an honest if I did not say this was a disappointment for both companies.”
But perhaps not for investors. Huntsman’s stock jumped more than 4 percent Friday to $31.06 per share. Hassan Ahmed, a chemical industry analyst at the New York research firm Alembic Global Advisors, said that Huntsman is positioned to do well with or without Clariant as it narrows its focus on specialty chemicals with high profit margins.
Huntsman’s third-quarter revenue jumped almost 20 percent to $2.2 billion from the same period a year earlier, and its profit nearly tripled to $179 million.
“From the Huntsman perspective,” Ahmed said, “this feels like if it’s heads you win, and if it’s tails you win as well.”
Rise of the investors
Huntsman Corp. and Clariant announced their plan to merge in May, with Clariant owning 52 percent of the combined company and Peter Huntsman becoming the CEO. The corporate headquarters was slated for Clariant’s hometown of Pratteln, Switzerland; The Woodlands would have become the North American headquarters.
But White Tale Holdings — a partnership of New York investment firms Corvex Management and 40 North — opposed the deal and doubled its stake in Clariant to 20 percent over just a few months. The activist investor playbook typically involves buying a 5 percent stake or smaller, presenting plans for change and convincing other shareholders to come onboard.
In this case, White Tale went for the jugular by buying up almost $2 billion in Clariant shares, making it nearly impossible for Clariant to gain the two-thirds of voting shareholders needed to approve the deal under Swiss law.
The opposition was led by Corvex’s founder, Keith Meister, who argued that the merger would dilute Clariant’s value. Meister called on Clariant to stick to its specialty chemical strengths, cut costs and sell off other businesses. Meister did not respond to requests for comment Friday.
Meister is a protégé of Carl Icahn, the famed corporate raider. Since Icahn gained notoriety in the 1980s, the “raider” terminology has evolved in recent years into the friendlier sounding shareholder activism.
Activist investors have been active elsewhere. The world’s largest chemical company, the newly combined DowDuPont, decided to merge in part because of pressure from activist investors Daniel Loeb of Third Point Management and Nelson Peltz of Trian Fund Management.
Only recently, DowDuPont again agreed to tweak its postmerger plans because of more pressure from Loeb, Peltz and two other firms. Apart from the chemical sector, Loeb has forced executive changes or sales at others like Yahoo, Sony and Sotheby’s.
Huntsman’s biggest outside investor is the large fund manager Vanguard Group, which owns a nearly 10 percent stake but typically is more passive.
Huntsman growth
For Huntsman, the end of the merger means getting back to work and pushing forward. In recent interviews, Peter Huntsman said he believes the specialty chemical sector will consolidate further, and his company needs to get bigger to compete with statebacked giants in China and elsewhere.
While he said he believed Huntsman Corp. could thrive on its own, Peter Huntsman said Friday that he will still pursue ways to achieve a larger scale.
“We’re going to be bold,” he said. “We will continue to look for acquisitions and growth opportunities — just maybe not to this size.”
Because of the improved knowledge and friendship with Clariant, Huntsman said it’s likely they’ll partner on projects. In the meantime, Huntsman said, the company remains committed to the Houston area, where it employs 1,800 people at its headquarters in The Woodlands and regional manufacturing facilities in Houston, Conroe, Dayton, Freeport and Port Neches.
“We’re here, and we’re here to stay,” Huntsman said. “We’re going to keep growing in the Houston area.”