Clariant – We Are Not Alone in Questioning This Complex Deal

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Graham Copley / Nick Lipinski

203.901.1629/203.989.0412

gcopley@/nlipinski@ssrllc.com

July 5th, 2017

Clariant – We Are Not Alone in Questioning This Complex Deal

  • Our immediate reaction to the proposed Huntsman/Clariant deal was that it benefitted the Huntsman family more than it benefitted anyone else.
    • The merger likely gives the Huntsman family an exit strategy from a business that has only been strategic for some family members while tying up capital for others.
    • Our primary concern from a shareholder perspective has been that the combination is likely to come up light on synergies while at the same time creating a portfolio that will be too complex to model, therefore discouraging investors.
  • The new shareholder concerns focus on Clariant and whether this deal is in the best interest of the company versus alternatives. This, of course assumes that there are alternatives.
    • When any deal is announced, it is instinctive to try and come up with a deal that might have been better – forgetting that companies can only consider the deals available to them.
    • We have little doubt that HUN would have looked at other possibilities before sitting down with Clariant and vice versa. If there are better combinations on paper for Clariant they may not be with willing participants.
      • Further, with the back-drop of the merger, Clariant now has two alternates – buy someone at a premium, likely causing dilution, or look to be acquired at a premium. If the latter is possible the announcement with HUN puts Clariant in play anyway.
  • Following the deal announcement HUN quickly gave up as much value as we believed was at risk with the deal – see our prior note – but the stock has recently recovered.
    • Our concerns remain unchanged – these are two complicated stories combining with no real overlap in businesses and consequently likely overly high synergy estimates.
    • Clariant trades at a higher EV/EBITDA multiple to HUN and the risk is that the combined company settles at the HUN multiple – suggesting downside in both stocks.
  • In Exhibit 1 we summarize our primary concern for this deal, which has evolved from a focus on complexity alone, to one of both complexity and the sharing of too much information.
    • Both HUN and Clariant choose to give sub-segment end market detail consistently in earnings reporting – far more detail than many – and when combined possibly more than any by a factor of two. These are too many variables for any analyst to track.
    • Other deals for either company with different third parties would not make the stories any less complex without a major change of direction in disclosures.
    • Our primary criticism of EMN for years now has been that it is a story that is too complex to model and apparently too complex to manage effectively. Clariant already has a higher multiple than other complex companies – the deal with HUN puts that at risk.

Exhibit 1

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