What's going on?
In the latest big merger in the chemicals industry, Texas-based Huntsman and Switzerland’s Clariant agreed to join forces, creating a combined company worth about $20 billion!
What does this mean?
Like many chemicals companies, Huntsman and Clariant make the kind of products that you probably don’t think about very often but that touch your life everyday: things like automotive fluids, clothing softeners and chemicals used in paint – yes, it’s exciting stuff! :)
Revenue growth has been hard to come by in the sector, boosting the case for a big merger: the combined company should be able to boost profit by eliminating overlapping costs (it’s targeting annual cost synergies of $400 million). It also aims to take advantage of each other’s respective geographical strengths to increase sales (e.g. Clariant selling more products in the US and Huntsman in Europe).
Why should I care?
The bigger picture: Chemicals companies are merging like rabbits!
This is far from the first chemicals deal in recent years. As the industry has faced challenging growth prospects it has tried to create more value for investors by changing its corporate structures. From Dow and Dupont’s merger to Bayer’s acquisition of Monsanto (and others), big chemicals companies are almost all looking to join forces in an effort to reap the benefits of greater scale (e.g. reduced costs, greater sales and more power to determine prices).
For markets: This is both an “all-share” deal and a “merger of equals”.
No cash is changing hands in this deal. Existing Clariant shareholders will own 52% of the new company while Huntsman’s shareholders will own the rest. As often happens with mergers of equals, the CEO of one company (Huntsman, in this case) will take the CEO role at the combined firm while the other CEO assumes the chairman’s position. Each set of shareholders is left, hopefully, to benefit from the advantages of the bigger company.