The USD 15 billion Merger Huntsman-Clariant at risk from shareholders who do not vote

Huntsman and Clariant are closing the details of their merger, but the gap between their stock prices remains wide open

In one of the largest trans-Atlantic deals of the year, the U.S. and Swiss chemicals companies announced in May that they would combine to create a USD 14.7 billion company. The shares of the two companies, however, are trading as if the deal might fall apart.

Huntsman stock has traded at a roughly 9 % discount to its value under the merger’s terms from the start of August until early September. While it has closed some this week, it is still at about 6 %, leaving a big potential profit on the table if the deal gets done and the gap closes.

Standing in the way are two Clariant investors that have joined forces to oppose it.

One of these investors is the family behind Standard Industries, a big U.S. building materials and chemicals company, the other is Corvex, an activist investment fund whose head, Keith Meister, has been a thorn in Huntsman’s side before.

Peter Huntsman, Chief Executive of Huntsman, told a Swiss newspaper this week that when he had previously crossed swords with Mr. Meister over a different deal: “His ranting irritated me.” He won’t meet the investor now.

Hunt Clar TableLast week, the companies’ merger teams met at Huntsman’s headquarters in Texas to begin planning their integration when the merger closes, which they say should be at the end of the year. Before then, it must pass shareholder votes at both companies, which are likely to take place in late November or early December.

The activists’ best hope is to build enough support to block the Clariant vote. The two investors opposing the deal are expected to produce alternative proposals to boost Clariant’s value before those votes. Together they own at least 10 % of Clariant and don’t have to notify the company again until they pass 15 %.

For Clariant, a challenge is ensuring enough shareholders turn out. One hurdle is passive index funds that don’t vote. This problem almost thwarted a private-equity buyout of German drugmaker Stada this year by making it easier for hedge funds to build a blocking stake.

Clariant needs two-thirds of votes cast to back its merger straight off. If turnout is around the historic Swiss average of 60 %, the activists only need 20 % of all investors on their side, including themselves.

Clariant investors, whose stock is up 12 % since the announcement, looks most exposed if the deal falls apart. The pressure is on to get out the vote.