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(Bloomberg Gadfly) -- Activists need more than a convincing argument to prevail over their targets. They also need the influence that comes with owning a big stake. New York-based Corvex Management and 40 North have both in their joint assault on Clariant AG.
The investors' joint venture, White Tale Holdings, claims to have amassed 15 percent of the Swiss chemicals group as they fight against its proposed merger with U.S. peer Huntsman Corporation. White Tale probably needs support from just another 10 percent of the register to kill the deal when it comes to a vote, depending on turnout. Less, if it buys more stock itself.
Bringing more investors to the cause shouldn't be hard. While a group of core shareholders representing 14 percent of Clariant has backed the Huntsman tie-up, the rest should be susceptible to White Tale's thinking.
The "merger" looks more like a takeover with no premium being paid. The proposed governance is tilted towards Huntsman. The company will be called HuntsmanClariant and people will doubtless revert to "Huntsman" before long. The combination also dilutes Clariant's strategy by introducing commodity chemicals into a portfolio that investors thought was focused on higher-margin specialty chemicals.
The combined group plans to make disposals to tidy itself up, including the probable sale of Clariant's plastics and coatings unit. Any gain will be shared with Huntsman's investors.
Clariant had a counterbalancing justification for pressing on in spite of these negatives: The chance to extract a mouthwatering $400 million of yearly synergies. Under the agreed ownership split, Clariant shareholders would share in 52 percent of these. Now White Tale has sowed doubt even here, suggesting that Clariant could strip out 300 million Swiss francs ($311 million) of annual costs as a solo company.
The argument speaks for itself. White Tale doesn't need to bang the drum. It is also offering, not demanding, to take a seat on the board. It hints that it could drop its opposition if Clariant hires new bankers to explore alternative deals. Clariant's ability to shop proactively for other offers may be constrained by its agreement with Huntsman. But potential suitors don't exactly need their attention drawn to this situation.
Companies doing M&A can exploit activist opposition to squeeze better terms from planned deals -- witness Safran SA's completely reworked deal for Zodiac Aerospace after pressure from TCI. The break fee if Clariant holders vote down this transaction isn't big enough to deter them from firing the torpedo. Clariant has leverage to secure better terms, whether with Huntsman or another party. Time to use it.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
To contact the author of this story: Chris Hughes in London at firstname.lastname@example.org.
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