M&A Announcement

Oct 27, 2017

Press Release

Ladies and gentlemen, good morning. Welcome to the Merger Update Conference Call. I'm Iruna, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mrs. Anja Pomrein, Head of Group Investor Relations. Please go ahead, madam. Good morning, and welcome to our conference call to discuss the termination of the merger of equals between Clariant and Huntsman. My name is Anja Pomouin, and I'm joined on the call today by Harriel Scottman, the President and CEO of Clariant and Patrik Ziani, CFO of Clariant. A copy of the press release announcing the termination of the transaction is available in the Investor Relations section of our website, clariant.com, and it has been filed with the SEC. Before starting, I'd like to remind you that today's discussion will include forward looking statements and actual results could differ materially from projections in those statements. Does not undertake any obligation to update publicly any forward looking statements. And with that, I will turn the call over to Hariolf. Ladies and gentlemen, good morning. Clariant and Huntsman today jointly announced that we have terminated our proposed merger of equals by mutual agreement. The decision was unanimously approved by the Board of Directors, both Clariant and Huntsman. The current situation is no longer comparable to the situation at the time when the merger decision was taken and announced May 22. Despite the fact that the majority of our shareholders still support the merger, it has become increasingly clear that Clariant will be unlikely to obtain the required two thirds majority of the represented votes required to approve the merger at an extraordinary general meeting. This realization prompted the management of Clariant Enhancement to pursue an equitable termination solution in the best interest of all stakeholders and in which no further costs would be generated. Clariant and Huntsman are still convinced that this merger of equals would have created significant value for all shareholders. And I must say we regret not having been able to execute and implement it. Both our companies considered it the right time to combine our companies and to create a new, larger, more profitable and financially stronger UCO. This was an exciting and unique opportunity to create significant shareholder value. The proposed Merger of Equals was the result of a thorough investigation by Clariant's Board of Directors and our Executive Committee, all available strategic options to further develop the company and to increase long term value for all stakeholders had been thoroughly analyzed and considered in weight, after which the merger of Equals with Huntsman was considered to be the best available option. However, we do have to accept the shareholder democracy and we will now continue our respective successful independent stand alone strategy for further growth and value creation. Prior to the merger, we have always said that we will continue to further progress with our strategy build on our five pillars for a stronger portfolio, which continues to grow based on our leadership positions in innovation and sustainability. We have the utmost confidence in continuing on our own premerger strategy. The elements of our strategy will continue to be the foundation of Clariant's profitable growth, progression in cash flow generation and value creation in the future. And I'm looking forward to discuss all of this with you in a few minutes. With that, I hand back to Anja. Thank you, Harriet, for the introduction. We will now open the line for questions. We will now begin the question and answer answer session. The first question is from Christian Faitz, Kepler Cheuvreux. Please go ahead. Yes. Good morning, gentlemen. Good morning, Anya. First of all, sad to hear that the merger is canceled. In any case, now with the deal being blocked, what is your strategy going forward? Will you be speeding up a potential separation from the more upstream parts of your portfolio? That is my one question. Thank you. As I just said, I think today it is not the right day to talk about intensive, large and dramatic changes in objectives and strategy of Clariant. Therefore, a clear statement from our side, we have clear objectives, you know them all, and we have a strategy which is several times has been communicated and we stick to objectives and we stick to the strategy and we continue to the execution. This does not mean that to a certain point in time we are open to discuss changes, adjustments, further developments which are beneficial for value creation and our shareholders. Okay. Fully understood. Thank you. The next question is from Stephanie Baudwell, Bank of America Merrill Lynch. Please go ahead. Yes. Thank you very much, and good morning, everyone. My question was largely with regards to your discussions with Whitetail. Can you perhaps help us understand the nature of the discussions between client management and Whitetail, whether those discussions have included any points or demands from the activists in addition to what we've already seen in their open letter? And finally, how you'll think about Whitetail's involvement in developing the new client stand alone strategy? Thanks. First of all, our discussions with White Fail are, I would say, constructive. They are positive. They are in an environment which is far away from being hostile. It is with mutual respect. We fully understand that the target, the objective of Whitesale is to maximize their investment and our objective is to maximize the enterprise value of our company. This is not the same And there's a difference. And we try to explain our position and they listen and they explain their position and we listen. We have so far not or nothing in addition heard from Whitehall in these talks, which is not publicized in their open letter or in their interviews they gave, I think, most likely in the Switzerland during their roadshow with press and media Concerning their involvement in our strategy development, first of all, we have many shareholders. Some of them do have 5%, 4%, 3%. Bavarian families have 14%, while and pale has 20%. But these are shareholders. And shareholders usually do not direct the strategy of a company. This does not mean that we do not listen to the arguments of our shareholders, And we will need to buy tail within the next, I would say, two weeks. We will have our telephone call, I think, this afternoon. We will explain the development to them. We will listen to their arguments and to their ideas. We will take these ideas constructively, positively. We will discuss this internally. We will make a decision on executive level. We'll discuss it with our board. That's the process within Clariant and then we will implement. Okay. Thank you very much. Maybe I can ask the following, Stephanie. I cannot imagine that we treat Whitetail differently than we treat other shells. Are just going to do this and we don't want to do it. Next question comes from Patrick Rafaisz from UBS. Please go ahead, sir. Yes. Thanks and good morning. Two questions, please. The first is have you had discussions with the Bavarian shareholders, the former C2Me people. Do do are they in support of you? Do you know have they met or talked to Whitetail as well? Where where where do they stand here? The the second question, I mean, it's it's publicly known that the divestment of plastics and coatings is pretty high on the agenda of of Whitetail. Have have your thinking around that changed in any way now with this year with the deal with Huntsman of? Thank you. Concerning the Bavarian family shareholders, I can just talk about that what I hear from their side. They are totally committed to the company and to the management. They identify themselves with the company, with the culture of the company, the brand of the company. We have two representatives of these families in our Board, it's Susanna Bansler and Konstantin Wintershteyn. Both are involved in all kinds of discussions and decisions. They are full supportive concerning our decision to announce the merger, first of all, and they are now supportive for the termination because they fully understand the reasons. And they speak for all members of this group of shareholders. Therefore, I never had since we acquired Zuidqimi, since we got familiar with these people also, let me say privately, we meet several times during the year. Have regular talks about the strategy of Clariant, the same information which is publicly available and we always see a very, very high identification of all these people present in our meetings. And by the way, I would say the majority of our shareholders, this is at least what Patrick, Anya and I perceived when we were on roadshow in the last weeks and months, the majority of our shareholders support the transaction. And the transaction is based on our current strategy. I always said that it is a logic continuation. It is one option of our strategy to create shareholder value and to increase competitiveness, profitability and many other capabilities of our company. Your second question, Patrick, was Plastics and Coatings. Ladies and gentlemen, we never said in the last two to three years that we will not divest Plastics and Coatings. We always said that we need certain kind of conditions to do this. Blexting and Coatings today represents 45% of Clariant. If we divest 45% of this company, I think we spend two or three years of restructuring, not talking about the restructuring money we have to spend, which is from our point of view, not value creating. And let me give you another example. We come, I would say, more to the conclusion that our BU Additives, which is part of Plastics and Coatings, could be managed as a growth business. Since we have a new management team in BioAdditives, we see very, very strong growth rates. We see excellent margins and it is much better for the company and the value of the company that we do not run this strong growing business in the future for cash. That means Pigments and Masterbatch are still our cash oriented businesses in the portfolio based on differentiated steering compared to the rest. And we are open to all kind of discussions and options to divest this business and use the proceeds to further increase the value of our company and to strengthen our portfolio. But it is, first of all, the timing and secondly, it's the way how you do it. We always said we want to have Plastics and Coatings as a strategic currency. We want to first strengthen one of our core businesses and then use the proceeds of divestment for financing of this transaction. If somebody has an idea how you can first sell and then without restructuring, the performance of the company on the same level, let us know. It seems that that you will that there there's a an a disagreement then coming up, right, with with how at least what we know from my tail and and their plans. And how big would you say is the risk of a gridlock in the end between Patrick, there's no Patrick, there's no disagreement. We have never heard from wide scale a precise proposal. We always heard ideas, very weak ideas. And their ideas changed from week to week. And therefore, I think it's time that we now sit together and really nail down what they really want. I still understand until this morning not why they wanted to block the transaction. There is not one logic argument on the table. Okay. Thank you very much. Thank you. You're welcome. The next question comes from Nicolas Tang, Evercore ISI. Please go ahead. Good morning. It's actually Laurent Favre from Evercore ISI. My two questions, please. First, on the call May, Harjot, you talked about how size was going to become a very important a very critical factor of success in specialties. You mentioned your view of the world where we would end up with four, five, six, seven companies in the size of $15,000,000,000 I was wondering if you could tell us if this is still your view and whether because of that growing for you is a very important success critical factor. And you just said that it's not clear to you what Whitehall really wants. Can you tell us what you really want? Because again, it's not clear to me on this call whether you're thinking that the right success path for Clariant is to shrink then grow or carry on as you've been carrying on successfully in the past three or four years? Thank you. I mentioned this morning in our call with the media and the press that we are more or less back to October 2016. And that's exactly what we are. We are there with our objectives and we are there with our strategy. And size, coming back to the strategy, is still a critical success factor. We are still convinced, very much convinced that in the next five to ten years, if you want to further develop the company mid to long term, size, critical mass is very important sector like comparable, like a very solid backward integration into critical raw materials. These are very important topics. And when we go through our current positioning of Clariant, we are back in October 2016. The same reasons, the same arguments, the same criteria are valid. And I come back, we have the same strategic options as we had one year ago. And that is a standalone that we meet market expectations, standalone. This is a merger of equals with a peer. This is a transformational acquisition, for example, and everything what I told you several times. Nothing has changed because the world has not changed just because we now terminate the merger with Huntsman. And it is still important for Clariant to find a way in order to increase the size and get more competitiveness, higher profitability and all the criterias we had involved in the transaction. What the second question you said, I mentioned, I did not know what Whitehall really wants and this is true. I think nobody from Clariant knows it. And if you read the letter or if you read the interviews, I don't know if you know more after reading these documents. What Clariant wants to do is to further implement successfully our strategy in order to meet our objectives, our midterm and long term objectives. When we come to the conclusion that standalone is too slow, it's just evolutionary, it's not fast enough for us to meet our objectives, then we have to find other strategic options in order to increase the value creation development of the company. And again, the merger with Huntsman was such a try to increase the value creation to accelerate, intensify and move Clariant on a higher level. And even if you are not in favor of the industrial logic and even if you are not a fan of a polyurethane business and you don't consider it as a specialty business, I can understand all arguments. It's not my argument, but I understand these arguments. I think there is no way around that the merger would have created CHF5 billion to CHF6 billion or U. S. Dollars value for shareholders. In close to €500,000,000 synergies, more than €100,000,000 commercial synergies and, and, and therefore, I have no reason heard so far why this merger really was the challenge. And again, to clarify, Clariant wants to continue to achieve its objectives based on our own strategy. If this is too slow, we have to find ways to accelerate it and other strategic options. Thank you. And if I may ask a follow-up, it's not clear to me in the articles of association. If you were to do an acquisition with a back to back monetization of Plastics and Coatings, which seems to be plan B now, at least what I'm gathering from plan B. Would you require a vote? It seems that you would only require a vote if you want to issue equity. But I'm wondering if you can clarify that. Yes, indeed. Think we are free to make an acquisition and to sell on the capital increase that require the approval of shareholders. Thank you, Patrick. You. It's good understanding. It's not plan B. Okay? Thank you. Understood. Thank you. It's an option, but it's not our Plan B. Understood. The next question is from Peter Clark, Societe Generale. Please go ahead. Yes, good morning. Thank you. I realize there will be a little disappointment regarding this. I just want to follow-up on the Plastics and Coatings because obviously that is something in your control. My understanding is the cash flow out of this thing, it's probably 45%, 50% of the group cash flow. So this is something that really doesn't make sense to divest for some time anyway. So that would be the first point. And the second one is, obviously, this was value on the table tomorrow for shareholders. It was something that was in front of them. I'm just wondering if you've had any feedback from the other shareholders. You mentioned the family, but obviously, a lot of them are going to be pretty disappointed with this, although it was becoming less of a surprise, of course, but just those two questions. Thank you. Yes, Peter. Yes, I think the first part, think, clearly, as we've always said, I think quoting is 45% slightly up on of the total cash flow generation of the group. It's been the one segment business area of the group, which has actually fundamentally improved its performance in the last two years and therefore has been fundamental in the improved cash flow generation of the group overall. And we therefore, as you rightly say, are not in a position to divest this business without adding alternatives. And at least clearly the position today. I think the majority of shareholder as Harald was saying before is and was supporting the deal and therefore there's certainly a sort of disappointment feeling that this value has been taken away. By the way, the merger would have allowed us to divest Special Equipment faster than we are now in our stand alone solution. So there was value on the table immediately as well through that element for the shareholder, which we now cannot deliver. And as was saying, we will look for other ways to, first of all, continue our current strategy, improve our businesses as they are doing. We will report our Q3 figures on Tuesday. And then as Harv was mentioning, are ways to accelerate value creation. We obviously look at them as well. Thank you. The next question is from Gunther Zechmann, Bernstein. Please go ahead. Good morning. I have one question please. You said Clariant was more or less back to October 2016. One thing that's different, of course, is valuation shares traded on 13 times PE and now they are closer to 19 times. Do you see an urgency to benefit from say a window of opportunity that you might have now that you could use to pursue strategic options that involve equity? Linda, we just had an option which involves equity, which has been blocked. And therefore, that makes this move a little bit difficult right now. I think we are totally, as I was saying, coming back to our normal plan of developing our results and we'll look at any option that which might create additional value. But for now, think it is back to our standalone strategy, which has been successful and we look forward to it. Okay. So just to be completely clear, when you say this was the only option and still is, then you're not considering any alternative merger scenarios? As we said, the best option at the time and it will have created tremendous value, we cannot execute it now and we look at further options. Have always been different options and there will always be different options and we'll be looking at them. But right now, we cannot announce any new options right now today. Understood. Thank you. I think it would not be very convincing if we would announce another merger of equals today or tomorrow. Thank you. Gentlemen, that was the last question. Ladies and gentlemen, this concludes today's conference call. Should you have any further questions, please do contact the Clariant Investor Relations team. So once again, you for joining the call and have a good day. Goodbye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines.