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(Bloomberg) -- Saudi Basic Industries Corp.’s surprise purchase of a quarter of Clariant AG from activist investors gives the petrochemical giant a long-desired foothold in higher-margin additives, while also taking the European chemical industry’s No. 1 takeover target off the table.
With the purchase of a 24.99 percent stake, Riyadh-based Sabic becomes Clariant’s largest investor, replacing the White Tale group that sought to break up and sell the Swiss manufacturer. While Sabic said it “currently has no plans” to make a full takeover offer, its presence casts a force field of protection over its longstanding customer.
“Clariant is now marked ‘off the market,”’ said Baader Bank analyst Markus Mayer. “Sabic is not being a white knight to be nice guys. They’ll want to acquire Clariant at some stage.”
As the prospects of an activist-fueled bidding war dimmed, the company’s shares fell as much as 11 percent in Zurich trading on Thursday. Sabic’s purchase would have been worth about $2.5 billion based on the previous day’s closing price.
The exit of industry investor 40 North and Keith Meister’s Corvex Management hedge fund will be welcomed by Clariant Chief Executive Officer Hariolf Kottmann after their White Tale vehicle blocked his planned combination with Huntsman Corp. last year. In a bid to bring stability to the Swiss company, Kottmann had been seeking another large shareholder to sit alongside a Bavarian family group that’s long been an anchor investor.
Clariant “intends to engage with Sabic over the coming weeks” to discuss the future relationship, the Muttenz-based company said in a statement Thursday. Kottmann was under pressure to present a new strategy for the company that would keep investors on his side and away from White Tale’s quest for change.
Sabic’s investment in Clariant is a “successful outcome,” David Millstone, co-chief investment officer of 40 North, said in the Saudi company’s separate statement. Faced with firm opposition from Clariant, its returns would have been at risk if the only way to exit was a sell down of its stake.
“We’re not surprised to see White Tale throw in the towel,” said Alex Stewart, an analyst at Barclays. While the activist group advocated a disposal of a plastics and coatings division and a cost-cutting program, Kottmann remained firmly against both proposals, Stewart said in a note.
The analyst called the entrance of Sabic an “interesting twist in a complex story.” More information is needed on the Saudi company’s long-term plans to make a “convincing call” on Clariant shares, he said.
The stock was trading 6 percent lower at 26.68 francs at 2:23 p.m., giving a market capitalization of 8.8 billion francs. It had risen about 32 percent in the interim after White Tale announced July 4 that it had taken a stake and wanted to scuttle the Huntsman deal. After it was rebuffed by the board, the investor said in November it would go directly to the Swiss chemical maker’s shareholders with a proposal that the company review strategic options.
“The deal is part of Sabic’s strategy to diversify its products and to provide innovative solutions to its customers,’’ the Saudi firm said. The Swiss company will give it interests in markets as diverse as cosmetic ingredients, oil and gas chemicals and additives and colorants for plastics.
Biggest Deal Since GE
Buying a stake in Clariant would be Sabic’s biggest deal since acquiring General Electric Co.’s plastics business for $11.6 billion in 2007. That transaction a decade ago triggered speculation the Saudi company was looking to make other acquisitions in a bid to lessen its dependence on producing large volumes of basic petrochemicals.
Instead, it was forced to restructure the plastics operations and the hype around its interest in other makers of higher-margin chemicals subsided.
Clariant’s catalyst business may have been a key attraction for Sabic, according to Mayer, pointing to the Saudi company’s past interest.
Sabic lost out in the auction for German catalyst maker Sued-Chemie when it was sold by a Bavarian family group to Clariant for about $2.3 billion. The family still holds about 15 percent of Clariant.
“When Sued-Chemie was sold in 2011, Sabic was among the bidders in the last rounds,” Mayer said. “As the catalyst business has just started its recovery, the timing of a takeover makes sense.”
As well as catalysts used to improve the production of petrochemicals, Clariant’s technology in industrial biotechnology and polyurethanes will also be of interest to Sabic. The Saudi company acquired Huntsman’s petrochemical assets in the U.K., and the rest of the company may also be attractive, Mayer said.
“It may take a while but Sabic will want to do a full takeover,” Mayer said. “They have deep pockets and a long-term view and business model and might be willing to go beyond the prices that others would have been willing to pay.”
Mayer estimates that Clariant could be worth 35 francs to 40 francs a share in a complete takeover or breakup scenario. Following the Sabic deal, the likelihood of Clariant being bought up has risen to 70 percent, up from about 50 percent, he said in a note.
(Adds analyst comments from third paragraph.)
--With assistance from Zainab Fattah
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