Saudi Giant Snaps Up Clariant Stake From Activists – The Wall Street Journal

Saudi Giant Snaps Up Clariant Stake From Activists – The Wall Street Journal

Brian Blackstone & Nicolas ParasieBrian

January 25, 2018

Saudi Basic Industries Corp. said Thursday it has acquired a roughly 25% stake in Clariant AG from U.S. activist investors, making it the biggest shareholder and triggering a sharp fall in the Swiss chemicals company’s share price.

The deal eases pressure on Clariant after months of acrimony with activist investor White Tale Holdings over the direction of the company, and could reduce the chances it will face a hostile takeover. The Saudi company, commonly known as Sabic, has worked with Clariant in joint ventures before and said Thursday that it has no plans to launch a full takeover.

The parties involved didn’t disclose a purchase price. Based on Clariant’s closing share price Wednesday, the deal could be worth about 2.36 billion Swiss francs ($2.48 billion).

Clariant shares fell 8.1% in European trading Thursday.

White Tale, which was dissolved Jan. 18, comprised investment funds 40 North Latitude Master Fund Ltd., controlled by David Winter and David Millstone; and Corvex Master Fund Ltd., controlled by Keith Meister. Corvex owned 7.56% of Clariant while 40 North held 17.58%.

Last year, White Tale scuttled a proposed merger between Clariant and U.S.-based chemicals company Hunstman Corp., while steadily raising its stake in Clariant. At the same time, Clariant rejected White Tale’s demands for three seats on its board and dismissed a call to hire an investment bank to explore strategic options for the Swiss company.

“We have been significant shareholders of Clariant since 2016. SABIC’s strategic investment in Clariant is a successful outcome and we are pleased to have played a role in making it possible,” said Mr. Millstone.

Through the first nine months of 2017, Clariant sales rose by 10 % from the year-earlier period to 4.7 billion Swiss francs.

Sabic is the Saudi Arabia’s largest listed company, with 30% of its shares trading on the local exchange while 70% is owned by Saudi Arabia’s wealth fund. Since it was set up in 1976, the group has transformed itself into one of the world’s largest petrochemical companies, first from its base in Saudi Arabia, later through acquisitions in Europe.

Sabic’s expansion abroad happens as Saudi Arabia’s authorities are trying to reshape the country’s economy by generating revenue sources other than the sale of oil. The government has taken bold steps, such as reducing subsidies on utilities, to reduce a budget deficit caused by a drop in oil prices. The plan is aimed at spurring private-sector growth by reducing government bureaucracy and attracting foreign investments but also developing industries like mining and tourism.

Sabic’s stake in Clariant, the equivalent to about 83 million shares, reduces the chance that parts of Clariant’s business will be sold off and appears to take a full takeover off the table for now, said Lorena Zini, analyst at Vontobel Research, explaining Thursday’s share price decline. Still, it is an “open question” what Sabic does with the stake over the longer term, she said.

In a statement, Clariant said it “intends to engage with SABIC over the coming weeks in order to discuss the new situation and explore possible ways to create value.”

The deal, which is subject to regulatory approvals, comes months after Sabic Chief Executive Yousef Al-Benyan called on the petrochemical industry to consolidate to become more competitive.

“I call for consolidation and I call for mergers within the industry, otherwise some of those companies will not make it in the future,” he said in an interview. “If you want to maintain your competitive positions, you have to have a global footprint in terms of assets, to leverage each region’s benefits.”