In March 2017, the world’s largest coatings producer, Pennsylvania-based PPG – which three years ago announced it had budgeted $4bn for major acquisitions but still has nothing to show for it – laid siege to Amsterdam-based rival AkzoNobel. More recently, US hedge funds have drawn Basel-based Clariant into their sights.
While the motives of industrial investors and hedge funds differ, the tactics of forcing a company to make strategic changes that seemingly will generate more value suit both. Pursued for some time by private equity, and aware that other would-be suitors were hot on its trail, Akzo earlier in 2017 announced plans to hive off its speciality chemicals business into a standalone company. The same concerns were central to Clariant in its decision to merge with Huntsman. As it appears, neither tactic has deterred or deferred activist action.
Binnenhof, The Hague, Netherlands. The Dutch government assisted Akzo in avoiding the attempted takeover. Image: Wikimedia Commons
At Akzo, PPG wielded the battering ram into June, with even the lure of a €26bn deal making no impression. With moral support from the Dutch government, the European coatings market leader parried the thrust. Nevertheless, financial markets have it that the US rival, with support from activist investor Elliott Advisers – which owns 9.5% of the Dutch player’s share capital – will return to fight another day.
Elliott continues to stir the waters with legal challenges. It has lost two cases so far, but the tentative truce sought by the courts until Akzo holds an extraordinary general meeting in September appears shaky. Already, the defence effort has taken a toll on the Amsterdam company, which owns the assets sloughed off some years ago by erstwhile chemical industry heavyweight ICI.
Swiss chemical company Clariant, whose interests vary from transport to beauty, are also under siege from US opponents.
Down the road in Switzerland, Clariant is being pummelled by White Tale, an acquisition vehicle for US hedge funds Corvex and 40 North, which have meanwhile acquired 10% of its share capital. The funds are seeing to torpedo the merger with Huntsman, contending that the combination lacks strategic rationale and undermines the Swiss group’s strategy of becoming a pure-play specialty chemicals company.
Because of the family’s interest, the New York vulture capitalists can’t get their hands completely around the Huntsman jugular, but making the leaders of the family-led business uncomfortable about the impact on its business may generate some degree of satisfaction. The US firm has already reacted to pressure by spinning off its pigments business.
Clariant CEO Harriolf Kottmann. Image: PressReleaseFinder@Flickr
Also under obvious pressure, Clariant CEO Harriolf Kottmann, in presenting semi-annual financial results in July, announced that management was amenable to selling about a quarter of assets to appease the markets. This, he suggested, could include the divestment of the speciality chemicals group’s lower-margin Plastics & Coatings division.
The Swiss player’s largest business unit, spun off last year, which manufactures masterbatches and pigments for colouring plastics, accounts for 40% of group sales. With the proceeds from the asset sale, the investors reason, Clariant could pay a special dividend and make them more willing to stay the course without a merger.
The chemical industry sector is undergoing some huge changes worldwide. Video: PWC’s Strategy&
At least openly, no activist ‘invader’ has yet been spotted trying to overcome the well-fortified ramparts of Deutschland AG or been coldly brushed off by the Ecole Nationale-trained leaders of France’s chemical producers. However, if the raiders’ recent forays into the Netherlands and Switzerland eventually succeed and find imitators, the picture could change – especially as acquisition-hungry companies and the so-called vulture capital funds that took a wrecking ball to Dow and DuPont seem to have joined forces.
Meanwhile, there may be some relief on the horizon for CEOs currently struggling through sleepless nights. Even with deal fever still simmering, some M&A watchers believe takeovers or mergers worldwide may have reached their zenith. Not least, as global economic recovery gathers strength, rising interest rates will cool the enthusiasm for more expensive transactions, the argument goes.