Chemical Industry - Next Wave?

Huntsman Corp and Clariant AG joined hands to create a $14B chemical manufacturer. HuntsmanClariant specialty chemicals company will be 52% owned by Clariant shareholders and valued ~ $20 billion (including debt).

Many European companies have turned to dealmaking as growth in the chemicals industry has slowed. European businesses have particularly suffered, losing market share to Asian rivals, where demand is rapidly growing, or to North America, where energy is cheaper.

Huntsman, controlled by Mormon family, is best known for inventing the clam-shell styrofoam box for McDonald's Big Mac burgers. Based in Woodlands, Texas, their chemicals are also used in paint, clothing and construction. Clariant makes aircraft de-icing fluids, pesticide ingredients and plastic coloring.

Peter Huntsman, founder's son, will become CEO of the combined group while Clariant CEO Hariolf Kottmann will be its chairman. Combined company will have HQ in Switzerland, with operational center in Woodlands.

The deal is backed by a group of Bavarian families that own almost 14% between them in the Swiss group. While some are speculating Clariant might attract a higher bid. Last year both parties had ended merger talks over who will lead the merged company.

Clariant had in 2012 divested underperforming businesses like textile and paper chemicals. In mid-2015 it carved out plastics and coatings business into a separately managed entity which will now be an integral part of the new company. It could be sold to fund any further takeovers. Huntsman, for its part, will continue to pursue the planned IPO of its pigments and additives business known as Venator.

Clariant, formed in 1990s from parts of Sandoz (Swiss) and Hoechst (German), was facing investor pressure to identify a growth strategy. The combined group is expected to use its bigger fire power to pursue further deals.

Like Clariant and Huntsman, several rivals are taking steps to separate businesses. W.R. Grace, (competes with Clariant in process catalysts that speed up throughput of petrochemical reactors) split itself into two listed companies last year, spinning off GCP Applied Technologies.

Ashland, (products include resins for tank and pipe linings and thickeners for sauces and ice cream) last year listed its Valvoline engine oil unit on the stock exchange.

European peers BASF, Solvay, Evonik and Lanxess have agreed multi-billion takeovers since mid-2015. Dow and DuPont are currently in midst of $130B merger. Dutch paint and coatings group Akzo Nobel is fighting an unwanted approach by U.S. rival PPG.

Will the Chemical M&A result in the next wave in world economic activity? Lets wait and see how things shake out.