Clariant, Huntsman to Combine in $20B Inversion Deal
Clariant and Huntsman agree to terms that will lead to a shift in tax domicile to Switzerland for the Texas-based chemical company.
Clariant AG shares surged to a record high Monday, May 22, after the Swiss chemicals group said it had agreed to an all-share "merger of equals" with U.S.-based Huntsman Corp. (HUN) that will be worth around $20 billion.
The deal will achieve the benefit of shifting Huntsman's tax domicile to Switzerland from the U.S., according to tax expert Robert Willens, who heads an eponymous corporate tax consulting firm in New York City. Though Willens noted in a report on the deal Monday morning that the terms are technically different from most inversions, he observed that "the parties will be able to engage, to the extent they still exist ... in income shifting tactics that should lower the worldwide tax rate."
Treasury Secretary Steven Mnuchin has said that the Trump administration would ease rules imposed by the Treasury under President Barack Obama that make it all but impossible to engage in such transactions, and this appears to be the first deal to test that rhetoric. Willens noted that the press release issued by Huntsman and Clariant refer to "additional cash tax savings" from the deal.
Huntsman had previously announced plans to spin off its pigment and additives business but earlier this month changed course and said it would instead IPO its U.K. business. Willens said that the change of course appeared to result from the success of talks with Clariant, since the analyst observed that the spin-off would otherwise have been taxable.
The new company, to be known as HuntsmanClariant Ltd., will have sales of around $13.2 billion, the companies said in a statement, based on pro-forma 2016 sales and adjusted operating profit of $2.3 billion. The deal is expected to close before the end of the year, the companies said in a statement.
"This is the perfect deal at the right time," said Clariant CEO Hariolf Kottmann. "This is in the best interest of all our stakeholders. Peter Huntsman and I share the same strategic vision and I look forward to working with him."
Clariant shares leaped more than 9.3% in Switzerland Monday to change hands at €22.78 each, an all-time high, giving it a market cap of around €7.5 billion ($8.37 billion).
"Together we will create a global leader in specialty chemicals with a combined balance sheet providing substantial financial strength and flexibility," said Huntsman CEO Peter Huntsman.
The combined company expects annual cost synergies of about $400 million within about two years of the deal closing and expects this to result in more than $3.5 billion of "value creation." The companies also expect additional tax savings. The savings will be achieved by reducing operational costs and improving procurement and represent about 3% of total combined 2016 revenue. but there will be onetime costs of up to $500 million.
They also expect improved growth and returns from key markets such as the U.S. and China as they develop new products and share knowledge.
Clariant shareholders will swap their existing stake for a single HuntsmanClariant share and will ultimately own 52% of the combined entity. Huntsman shareholders will receive 1.2196 HuntsmanClariant shares for each Huntsman share. The deal is expected to close by the end of 2017, subject to regulatory approvals, which the companies said they are confident can be obtained in time.
The combined group will be headquartered in Pratteln, Switzerland and will have a global operational hub in The Woodlands, Texas, a suburb of Houston, and will have a dual listing on the SIX Swiss Exchange and the NYSE. Kottmann will become chairman of the board, while Huntsman will serve as CEO.Jon Huntsman, the U.S. company's chairman and founder will be chairman emeritus and have a seat on the merged company’s board.
Huntsmann shares closed at $26.71 each in New York on Friday, with a net capitalization of $6.6 billion.
Clariant was advised by Citigroup Inc. and UBS AG. Co-counsel to Clariant were Swiss law firm Homburger, in a team led by Frank Gerhard, and a Cleary Gottlieb Steen & Hamilton LLP team led by Victor Lewkow.
Huntsman was advised by Bank of America Merrill Lynch and Moelis & Co. LLC and its legal advice was from a Kirkland & Ellis LLP team led by David Fox, as well as Swiss law firm Bär & Karrer and Houston's Vinson & Elkins LLP
— Jonathan Braude contributed to this article.
