Clariant's Activist Shareholders Get Under Huntsman's Skin

Sep. 27, 2017 2:56 PM ETClariant AG (CLZNY), HUN1 Comment
John Abbink profile picture
John Abbink
744 Followers

Summary

  • The behavior of Huntsman’s and Clariant’s shares since announcement of their proposed merger do not suggest that arbitrageurs are convinced about the deal.
  • In particular, a consortium of hedge funds’ purchase of Clariant shares has pushed their performance out of expected alignment.
  • The companies have done little to encourage investors to come on board for the merger proposal: synergy promises remain theoretical.
  • Management of both companies will have to make a stronger case for the combination if they want to ensure Clariant shareholder approval.

Sometimes, the behavior of stocks in merger situations is just plain odd. On May 22, Huntsman Corp. (NYSE:NYSE:HUN) announced that it would combine with the Swiss chemical firm Clariant (OTCPK:OTCPK:CLZNY) in what (inevitably these days) was described as a "merger of equals." The terms were that Huntsman shares would be exchanged 1.2196-for-one into those of the Newco, imaginatively to be named HuntsmanClariant, and Clariant shares at the rate of one-for-one. On that basis, Huntsman shareholders would obtain 48% of the combined companies, and Clariant shareholders 52%. The combined group would be incorporated in Switzerland but operations would be directed from Huntsman's location in Woodland TX.

Huntsman has generally underperformed Clariant since the announcement - most sharply in the first three weeks after the announcement but never completely catching up since. This despite the fact that the proposed transaction is effectively Huntsman's managerial takeover of Clariant on terms that Huntsman shareholders cannot object against too strenuously: in effect, it is a takeover at no premium. The proposed combination has even suggested that it will maintain Clariant's more generous dividend policy (a payout ratio of ½ rather than ⅓).

So it is not surprising that, despite their relative share price performances, it is in fact Clariant shareholders who have objected most strongly to the combination. White Tail Holdings, a special purpose vehicle that pools the holdings of the activist investment vehicles Corvex Management and 40 North, reports that it holds a 15.1 stake in Clariant, making it the Swiss company's largest shareholder. This combination is sufficiently convinced of the justice of its cause that, over the last three months or so it has doubled its stake to its current level. The purchases involved probably account for the relative performance of the companies' shares since the third week in July.

White Tail's opposition

This article was written by

John Abbink profile picture
744 Followers
I am the author of Alternative Assets and Strategic Allocation, released in 2010 by Bloomberg Press/John Wiley. I have been involved with investments of all types on both sides of the Atlantic since 1980, as an equity analyst, portfolio manager, research director and corporate planner. I have established the investment function at several firms and introduced alternative investments where they had not previously been employed. I was deeply involved with shaping European Union securities legislation and have consulted widely to investment management firms, central banks and ministries of finance. I am also the author of articles appearing in the Journal of Risk Finance and the Journal of Trading. I hold a Ph.D. in philosophy from Yale University.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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