November 24, 2017

Breakingviews: Clariant and Activist Lack a Positive Reaction

by Breakingviews.

It’s easier for an activist to oppose than propose. That’s the straightforward lesson from Clariant’s struggle with its largest investor, White Tale. The 20 percent shareholder scuppered the Swiss chemicals maker’s merger with U.S. rival Huntsman. Determining what happens next, however, will require powers of persuasion.

The $9 billion company announced on Friday that it would lay out a new strategy for investors early in the new year. At the same time, it rejected a proposal by White Tale – which combines Keith Meister’s Corvex and fellow U.S. fund 40 North – to hire an investment bank to lead the strategic review. It also offered the investor one seat on its board, rather than the three White Tale had demanded.

The stakes are high. Merger speculation has lifted Clariant shares almost 62 percent in the past year. They are higher now than before the company withdrew its deal with Huntsman at the end of October. Investors appear to be anticipating some kind of takeover or breakup, such as a sale of Clariant’s lower-margin Plastics & Coatings division.

The company led by Chief Executive Hariolf Kottmann insists that disposing of the unit, which Bernstein analysts expect to account for more than 40 percent of revenue this year, only makes sense if it has ways to replace the cash flow the business generates. Clariant could also be required to pay Huntsman a belated break fee if it sells part of its portfolio within 18 months of abandoning the merger.

White Tale can use its clout in other ways. It could offer its shares to a prospective suitor. Or it could threaten to eject Kottmann or other Clariant directors, who under Swiss law must be re-elected each year. But it would need the support of other investors to secure a majority vote. That’s a bigger challenge than opposing the Huntsman deal, which would have failed if just one-third of shareholders had rejected it. If White Tale wants to get its way, it needs to start being more constructive.


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