LONDON (Reuters Breakingviews) - Short-term activism can sometimes produce long-term good. That is the case with the $14 billion scrapped merger between Clariant and Huntsman, which would have combined two chemical makers with little overlap into what was effectively a conglomerate. Now that the merger is off, Clariant can consider other options. But there is a catch, in the form of the activist duo that killed the deal. Investors now need to know whether they are a catalyst, or an inhibitor.
White Tale, a shop-front for Keith Meister’s Corvex and fellow fund 40 North, bought a 20 percent stake in Clariant to convey its disapproval of the planned merger with U.S. peer Huntsman. Since a two-thirds majority vote was needed to approve the deal, and turnout at shareholder meetings is low, that was the end of that. The 6 percent drop in Clariant’s shares on Oct. 27, equivalent to around $500 million, compares with its $1.8 billion proportional share of the lump-sum value of estimated synergies. Investors had seen the writing on the wall.
Now comes the post-activist chill. White Tale holds shares worth around $1.6 billion in a cyclical business, at a time when interest rates could soon be rising in the world’s major industrial economies. Moreover, Meister’s plan is unclear. While he has had successes pushing KFC owner Yum! Brands into a spin-off of its Chinese business, his track record is hardly that of, say, Nelson Peltz, the seasoned investor calling for a clean-up of consumer brands group P&G, or Meister’s own former boss, Carl Icahn.
Clariant boss Hariolf Kottmann has, he concedes, other options. The company could be a takeover target for a rival like Evonik. And splitting off its plastics and coatings business is an old idea that may still create value. The risk is that the triumphant activist will push too hard to realise rapid cost savings. This is no Akzo Nobel, the troubled Dutch chemicals group pilloried by Elliott Advisors for its inaction when a bid arrived from U.S. peer PPG. White Tale has managed to make Clariant show restraint. To deserve a hearing, it now needs to do the same.
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