Publication Date: July 20, 2017
When the $20bn Huntsman / Clariant merger-of-equals was announced, it was met with disappointment from shareholders of both sides, but Clariant’s shares initially rose on the synergy and accretion upside, and on speculation that the company may receive a takeover proposal from a third party. Since Clariant has been labelled as the acquirer for purposes of the deal structure, the risk arbitrage spread has remained wide since the announcement. This is surprising given it is a nil-premium merger (usually spreads trade around parity for these types of deals), but at first glance understandable given the risks to being short Clariant, a potential takeover target. The spread has widened since 4-Jul-17, when the deal was criticised by Clariant’s newest and largest shareholder, White Tale Holdings, which comprises of activist fund Corvex and 40 North, who seek an “alternative transaction”. Our research assesses the deal rationale, what the activists can do to disrupt, how Clariant can defend itself, the Venator IPO, standalone values, break prices and risk arbitrage trading considerations.
1. Situation Overview and Strategic Rationale; Who Benefits More? 2. Is a Counterbid Likely for Clariant? 3. M&A “Acquirer” Activism: Corvex and 40 North; Can They Disrupt? 4. Huntsman’s Venator IPO and Potential as a Standalone Company 5. Antitrust Assessment 6. Considerations and Anomalies of Trading Mergers-of-Equals 7. Break Price Analysis 8. Deal Structure and Timing Appendices A. Specialty Chemicals Industry Overview B. Company Overviews C. Precedent Transactions and Publicly-Traded Comparables
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