Ladies and gentlemen, good morning or good afternoon. Welcome to the Clariant Investor Analyst Call. I'm Sarah, the conference 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&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Miss Anja Palmgren, Head of Group Investor Relations. Please go ahead, madam.
Good morning and welcome to our call to discuss the merger of Clariant Ltd. and Huntsman Corporation. My name is Anja Palmgren, Head of Investor Relations at Clariant. I am joined on the call today by Hariolf Kottmann, President and CEO of Clariant, by Peter Huntsman, President and CEO of Huntsman, Patrick Jany, CFO of Clariant, Kim Asplund, Executive Vice President at Huntsman, and Ivan Marcuse, Vice President, Investor Relations at Huntsman. A copy of the press release announcing the transaction and a related investor presentation are available in the investor relations section of our respective websites, clariant.com and huntsman.com, and have 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 material from projections in those statements.
You should review the press release and related investor presentation, Huntsman's existing filings and SEC filings that Huntsman and Clariant will make in connection with the transaction, including a Form S-4 registration statement that will include a proxy statement of Huntsman and prospectus of Clariant for more information regarding the factors that could cause actual results to differ material from projections and expectations. Neither Clariant nor Huntsman undertake any obligation to update publicly any forward-looking statements. In addition, Huntsman and its directors and executive officers may be deemed to be participants in the solicitation of proxies in favor of the proposed post-merger. You can find information about Huntsman's directors and executive officers in Huntsman's proxy statement and annual report filed with the SEC. With that, I will now turn the call over to Hariolf to discuss the transaction. Hariolf?
Thank you, Anja. Ladies and gentlemen, good afternoon. It's my pleasure to have you join our conference call. For us, today is an exciting day. Two great companies, Clariant and Huntsman, are joining forces to become a single entity with more sustained innovation power, a much broader global reach, and hence, further new growth opportunities. Peter Huntsman and I share the same strategic vision, and I very much look forward to working with him. Let us start with the highlights of the transaction on slide number one. The merger of equals, and we think it's a true merger of equals that we are describing today, accelerates our joint path towards creating a leading global specialty chemical company committed to profitable growth. The combined group will have a significant enterprise value of approximately $20 billion.
Together, the incremental accelerated value accretion is expected to exceed $3.5 billion, based on an annual run rate synergies of approximately $400 million within two years of closing. In addition to the synergies expected to be realized, this step will also provide HuntsmanClariant with access to new growth opportunities. HuntsmanClariant will maximize its operational efficiency in its market-leading positions across attractive end markets in key geographies like China and the U.S. We also anticipate improved returns via the joint innovation platform. We have accumulated extensive combined knowledge with regards to sustainability, which we will continue to successfully transfer into our competitive portfolio in the marketplace. Our product leadership and focus on sustainability will allow us to effectively differentiate our extensive product offering.
Our new company will have a robust balance sheet and will be a highly cash-generative business, which will provide us with the financial power to implement additional operational options. I will now turn the call over to Peter Huntsman to provide an overview of the transaction.
Hariolf, thank you very much, and it's a pleasure to be with you here today. Let's turn to slide number two to discuss the specifics of this transaction. Based on the agreement of this all-stock merger of equals, Huntsman shareholders will receive 1.2196 shares for every one share of Clariant. This translates into Clariant shareholders owning 52% and Huntsman shareholders owning 48% of the combined company, which will be named HuntsmanClariant. The board of directors will be equally representative from each company, with Hariolf Kottmann serving as the Chairman of the Board, and I'm looking forward to lead the combined company as the Chief Executive Officer. Jon Huntsman's founder and Chairman, will be a board member of HuntsmanClariant, and serve as Chairman Emeritus.
We anticipate that Clariant's attractive dividend will be maintained, which will offer Huntsman shareholders about a 12% increase in the dividend based on last year's payout. The combined company will have a strong balance sheet with a pro forma net debt to EBITDA ratio of 2.4 times. As previously announced, we still plan an IPO of our Pigments and Additives business this summer, with proceeds being used to pay down debt. Upon completion of our sale of shares of Venator, our Pigments and Additives business, we expect these proceeds alone to improve our combined debt to EBITDA ratio to better than 1.5 times. In addition, our combined cash flow will be strong and further enhance HuntsmanClariant's financial profile. The global headquarters will be located in Pratteln, Switzerland, and the operating headquarters will be in The Woodlands, Texas.
Shares of the new company will be directly listed on the New York Stock Exchange and also on the Swiss Exchange. The combined company's financials will be reported in US dollars. We will file 10-Qs and 10-Ks compliant with the SEC's requirements using IFRS. We are targeting a year-end closing, but this is subject to regulatory and shareholder approval in addition to customary closing conditions. Hariolf.
On slide three, we see that as per closing on Friday 19 May 2017, HuntsmanClariant will have an enterprise value of approximately $20 billion, and a market capitalization greater than $13 billion. Pro forma 2016 sales from continuing operations, excluding Venator, were $13.3 billion. The EBITDA, including run rate synergies of $400 million, was $2.3 billion. The operating cash flow comprised more than $1.9 billion. These strong results reflect that HuntsmanClariant is a high cash generative company. The impressive $361 million R&D spend, more than 200 production sites, and in excess of 28,000 employees display the enhanced scale, which can be mobilized to realize value creation opportunities for all stakeholders. Slide four provides an overview of HuntsmanClariant's wide-reduced scope and critical size within the specialty chemical company arena.
This merger of equals will result in one of the largest global specialty chemical company in the market based on pro forma 2016 sales. This size will better position us to realize our shared vision. Slide five shows the composition of HuntsmanClariant sales and EBITDA, reflects its specialty chemicals profile, and the group's profitability breakdown. This larger sales base will serve to reduce the group's cyclicality and will allow us to provide our customers with a sizable increased product portfolio while simultaneously providing a platform optimized for cross-sell opportunities. In terms of profitability improvement potential, we are convinced that in addition to generating run rate synergies of approximately $400 million within two years of closing, the merger of our two companies will also enable us to realize additional margin enhancing measures.
Slide six illustrates the balanced geographic footprint of HuntsmanClariant. How this combination will also result in enhanced growth opportunities by significantly increasing Clariant's presence in North America by benefiting from Huntsman's strength in the United States, profiting from low-cost economies through vertical integration, extending Huntsman formulation expertise and downstream applications, strengthening the geographic platform to amplify the common growth strategy with extended local market access, a stronger product and application offering, expanding into adjacent markets, and combining end market exposure. Becoming a market leading international chemical company in China, capitalizing from ongoing growth investments and building on our manufacturing footprint with more than 20 locations, as well as benefiting from strong local joint ventures. The increased scale and strength of HuntsmanClariant, as set out on slide seven, reflects the strong specialty chemicals portfolio of the new company.
The two high margin businesses, catalysis and Advanced Materials, both ranging well above the 20% EBITDA margin range, are at the top of the list. These businesses will make key contributions to the profitable growth of the combined company. The complementary businesses, Care Chemicals and Performance Products, share similar margin potentials in the high teens, closely followed by Polyurethanes and natural resources, which are also well above the 15% EBITDA margin. Textile Effects is at the low end of the product portfolio margin range. While plastics and coatings will continue to be steered for absolute EBITDA, following the successful profitable transformation, which is the result of the differentiated business steering since 2016. Peter.
Thank you, Hariolf. Let's move on to slide number eight. The combination of these two companies create an opportunity for operational and procurement synergies in excess of $400 million per annum, or roughly 3% of total pro forma 2016 revenues. Merging our corporate and business services, as well as sharing our infrastructure, will enable roughly two-thirds of the cost reduction. The remainder comes from combined purchasing power, supply chain, logistics, and procurement. These synergies are expected to reach a 50% run rate by end of year one, with a full run rate by the end of the second year. We estimate that the one-time cost will be approximately one and a quarter times the savings spread over the next three years. Additionally, we expect cash tax savings of more than $25 million per year.
I feel that both companies have a great deal of experience accomplishing large scale integration and synergy projects. I've been impressed with the early cooperation and focus of our respective managers. Given our strong start, I have a great deal of confidence that these objectives will not only be met but exceeded, as we have more time in exchange between our two companies. Let's turn to slide number nine. While achieving our synergies is a clear means of increasing shareholder value, longer term, we need to accelerate the growth in margins both companies have achieved in past years. Over 80% of the EBITDA of HuntsmanClariant will come from businesses with margins in excess of 15%. This will more rapidly expand as we combine our commitment to innovation, customer satisfaction, research, and sustainability. Let's move to slide number 10.
In addition to synergies and margin growth, a key driver to accomplishing further value will not only be our molecular overlap, but our combined end market opportunities. Huntsman and Clariant are already actively supplying large global end markets such as consumer, transportation, construction, industry, and energy. Industrial and energy. Our combined geographic and technological platforms will only enhance our ability to better serve end markets. Please turn to slide number 11. The automotive end market is a prime example where we have multiple touch points. In many cases, our companies are selling to the same customer. Combined, our product offering will now be greater, and we'll be a more important partner in this constantly changing and innovative field. This is vital to both companies, as we don't want to be just a supplier of raw materials, but partners in developing new specifications and applications. Turning to slide number 12.
The key to future growth and margin expansion is a commitment to R&D. Separately, our companies have made significant investments into innovation, technology development, and sustainable business improvements. Together, we're spending more than $350 million annually on research and development. Combined, we will have more than 70 R&D centers across six continents. The combination of R&D platforms will enable us to improve our efforts in multiple areas as we focus on commercializing new products and further developing existing products in order to grow our customer. On slide number 13, we highlight what the pro forma financials would look like based on 2016 results, and including our expected synergies. Our combined financial strength will give us a level of financial flexibility that neither company would be able to experience separately. Furthermore, this transaction will not impact our expected IPO of our Pigments and Additives business this summer.
The proceeds expected to be well in excess of $2 billion after tax will still be used to reduce debt and will further strengthen our combined balance sheet. Let's turn to slide number 14. For the past eight years, we have been discussing opportunities between our companies. As Hariolf said earlier, this is the right time for us to combine two great companies and create a new, larger, more profitable, and financially stronger company than either of us could have built on our own. This is an exciting and unique opportunity to further create shareholder value. I'll hand this back now to Hariolf to summarize this presentation.
Thanks. Slide 14 also reflects that this transaction results in a compelling strategic fit underpinned by a strong industrial rationale. HuntsmanClariant is implementing a clearly defined integration roadmap to capitalize on both companies' strengths, realize combined synergies, and maximize the growth potential of a diverse range of markets. HuntsmanClariant is a more diversified global specialty chemical player with multiple avenues for above-market growth. This, combined with the realization of $400 million of synergies as well as a robust balance sheet and a strong cash flow generation, will further open the value creation. Anja, please.
Thank you, gentlemen, for taking us through the details of this exciting transaction. With that, we will open the line for questions. Operator?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you've entered a queue. If you wish to remove yourself from the question queue, you may press star and two. All participants are requested to use only handsets when asking a question. Anyone who has a question may press star and one at this time. The first question is from Stephanie Bothwell from Bank of America. Please go ahead.
Yes, good morning, and thank you very much for the presentation. Firstly, you can share with us where you see the largest areas of overlap between the two businesses. It would be useful to have something by product line, perhaps as a percentage of sales, if possible. My second questions are predominantly on the cash flow side. Couple of points of clarification. Firstly, could you share with us what leverage you're targeting for the combined company? Second point on the cash flow side is what CapEx requirements you will need as a joint company. I have one final clarification question, which I'll come to afterwards. Thanks.
I think that when we talk about product overlap, this is a difficult question to answer, just because I think that we probably have about 10% of our overall production of both companies would be going into end-use markets where I would say that we would have similar products going to similar customers. And that's one of the unique aspects of this deal, is that you have so many complementary products, not overlapping products. And so this isn't an exercise as to how we combine a lot of the same manufacturing formulas and so forth, but rather how we bring together two diverse product platforms that are largely going into some of the same industries, many of the same industries globally, but through different routes to market, through different technological platforms and different applications.
I think that there's going to be a natural overlap, but I think it's challenging to go through and say that 12% of our product is going to be going into exactly the same customer and the same product. With leverage, I think that the leverage that we talked about earlier at around better than 1.5 times EBITDA, I think that that would be something that we ought to be looking at as a minimal threshold when we look at the proceeds of the Venator IPO once this is complete. Again, I would just remind you that that objective does not include the free cash flow that's going to be generated from the operations anyway. I would think that within very short order that we ought to have a better debt-to-equity ratio than either of the companies enjoy today.
Maybe to complement on Peter's answer on your second part of the question, Stephanie. Indeed, the leverage will then be in the below 1.5 range, really in line with BBB rating. That's really the clear positioning of the company we see post-closing and post-IPO of the Venator business. What refers to the combined CapEx, we currently see the CapEx needs of the combined entities around $600 million-$650 million a year, out of which the maintenance CapEx is around $220 million-$250 million.
Okay, thanks. One final point of clarification. On slide 13, where you disclose the $953 million of operating cash flow for Huntsman, can you just confirm the basis for that? Is it ex Venator, excluding interest costs as well, or are interest costs already included within that $953?
Can you repeat that question? I'm sorry.
Yeah, sure. I'm just trying to understand the basis for the $953 million of operating cash flow that you disclose on slide 13 of the presentation. Is the only thing that's stripped out of that the Venator interest costs or are interest costs already taken out of that number? If I look at the $654 million for Clariant, I think it excludes interest costs. I just want to understand the basis for the $953.
Yes. That is just simply cash generated from operating activities in our cash flow statement, and we've excluded the cash generation from the Pigments and Additives Venator business. Likewise, it's the same with Clariant.
Okay, it's just the Venator portion that's stripped out of your group number. Okay, thank you very much.
The next question is from Robert Koort from Goldman Sachs. Please go ahead.
Thank you very much. Peter, I wanted to ask about the pivot and strategy. I know you had planned the Venator IPO and had hoped that would lead to some value lift for the remaining businesses. Did you think that wasn't going to happen? From your shareholder standpoint, why dilute that opportunity by sharing that potential value improvement with Clariant shareholders?
I think, Bob, that when we look at the overall picture as to the timing of this acquisition and the certainty of getting it done at this time and so forth, the combined benefits that Huntsman shareholders will receive by being part of a combination with Clariant, I think far exceeds the 50% of the proceeds coming in from Venator. I think if we look at this thing from a longer-term basis, opportunities like this are tough to come by, to say the least. Tadayoshi and I have been talking around this sort of an opportunity for nearly eight years now. Either we're going through a restructuring or they are assimilating an acquisition, or they are. We have a time right now where the time is right, the equity values are right, the marketplace is perfect for this.
I think that we need to strike at these sort of things. There'll be things that our shareholders perhaps may be looking on a short-term basis, and Clariant shareholders may well be looking on a short-term basis. Longer term, I think that I would much prefer to have a combined balance sheet with the debt levels and so forth, post Venator combined than separately.
Bob, if I could add.
Sure.
Post-separation of Venator, we have expected a re-rating of the Huntsman Corporation multiple, and we do share that with Clariant shareholders now. However, we also reaffirm what multiple we think we should be trading at with this transaction, that Clariant has a multiple that's one turn better than us, and we think that's really what we should be. We think that, and in fact, it reinforces what this new multiple should be and this transaction helps us in that regard.
Got it. Thank you.
The next question is from Andrew Scott from UBS. Please go ahead.
Good afternoon. Thanks for the presentation also. Couple of questions. I wonder if you could share the wider balance of the board. Maybe this is just too preliminary and you can't answer that question, but beyond the three appointments you've mentioned, just wondering how many seats are Huntsman, how many seats are Clariant? Question number two, are there going to be any accounting inconsistencies between the two groups? As you go to IFRS in US dollars, is there anything that we should be particularly aware of? Actually, sorry, I did have a third question, a smaller one. You talked about cash tax synergies $25 million a year. One of Huntsman's latest presentations, it's from May 16th on the website. It guides for cash taxes of zero for this financial year.
I'm wondering quite how you managed to get further cash tax benefits, at least in the short term. Thank you.
I'll take the latter because it's specifically Huntsman. Yes. We have a year this year where we're not paying any taxes because we pre-funded our taxes from a year ago, two years ago. That is just a one-year anomaly. Certainly, our long-term effective tax rate from a cash standpoint will be around 25%. We think that by combining certain subsidiaries, we'll efficiently use certain NOLs. That tax benefit doesn't come from the merger itself into a Swiss company. These are non-Swiss tax opportunities that we're pointing to.
The board of Huntsman and Clariant will consist of, in total, 12 members. Each company will contribute six members. We haven't talked within Clariant about names and people.
Likewise, on the Huntsman side, certainly before this transaction is closed, we will be announcing the six board members. Until then, both of us have active standalone boards that will have fiduciary responsibilities to fulfill between now and the time of closing.
Coming back to your second question, Andrew. Indeed, there will be actually two differences. We'll have the Huntsman accounts moving into IFRS, which will be one change. The second change is that we will move the Clariant accounts into U.S. dollar. Both will imply recalculations, more adjustments, particularly when you move into IFRS. Pensions, interest, and so on do get classified a bit differently.
We will just start the process. We don't expect major deviation that would distort relevant figures. Certainly, in terms of accounting, there's a change in adaptations to come.
Got it. Thank you very much for taking the questions.
The next question is from P.J. Juvekar from Citi. Please go ahead.
Yes. Hi, good morning. Question for Peter. Peter, can you talk about this merger of equals versus selling the company outright? Did you look at the latter option, and did you have any discussions related to a possible sale?
Well, we as a company, obviously have a fiduciary responsibility to explore all options. I think that as we look at this option, our board and our major shareholders, no shareholders that we've discussed this transaction with are in unanimous support. I think anybody that knows our history knows that we certainly wouldn't shy away from either acquisitions or a purchase. As we look at this and we look at the ability to maintain value and to create further value, the certainty behind this, we feel that this certainly is the best path forward.
Thank you. When companies combine, there are cost synergies, and in many cases, there are revenue synergies. I didn't see any revenue synergies here. Wondering if you're targeting any revenue synergies, and if yes, what they might be.
I think that as we look at synergies, at this point, we've been focused on the cost synergies. The revenue synergies is, I would assume, and again, this is more of a gut than any sort of a scientific feel. I wouldn't be surprised if we're able to see 1%-2% growth on a net per annum basis that we otherwise wouldn't see, that we ought to be growing better than GDP in most of our businesses. I think that as you look at the amount of R&D that is being spent with this group, we ought to have better than expected, or excuse me, better than GDP sort of growth with this business portfolio. I'm not sure that we'd be specific on that, but we would certainly have high expectations.
PJ, one great example would be the Care Chemicals business of Clariant and Huntsman's Performance Products business. The Care Chemicals business is further downstream than we are. They tend to formulate products that we have been selling to formulators. I can see how we could provide raw materials and also take some of our means further downstream into formulation than we currently are, adding value to those molecules.
I would just add, if you go to slide seven, I think that you look at the various businesses, I think that we're seeing global growth realistically somewhere around 3%, 3.5% today. If you look on slide seven, you look at the growth rates that we're seeing in virtually all of our businesses, you're seeing certainly at the high end of that GDP range of global growth and probably 50% again, higher than that. I think with the sort of investment, again, that we're making in the R&D area, that's only got to be sustainable.
One quick question for Kim . You talked about NOLs being used more effectively to lower the tax rates. Can you just tell us where those NOLs are? Thank you.
Most of our NOLs are in Western Europe, some of them have been created over years, that we just haven't been able to utilize them efficiently, Clariant has profitable businesses in some of those regions, certainly.
Thank you.
The next question is from Martin Roediger from Kepler Cheuvreux. Please go ahead.
Thank you very much for taking three questions. Basically, it is all on clarification. You say that the global headquarter will be in Pratteln in Switzerland and also CEO and CFO also based in Pratteln. The operational headquarter will be in The Woodlands, Texas. Does that mean that all other board members and the heads of the business units will be also located in Texas, or how should that work? Secondly, it is a question on Huntsman. On page 13, you say that $2 billion of net financial debt will be transferred from Huntsman to Venator. Can you also mention how much of your pension provisions will be shifted, or is that part of your $2 billion figure? Finally, maybe you can confirm what is the breakup fee from both sides. Thanks.
Well, if I can just take a stab at the headquarters. We will be a Swiss company. We will be headquartered in Switzerland. I think that when you talk about operational headquarters in The Woodlands, perhaps that is something of a balancing act. I wouldn't get too caught up on the word headquarters. I think from a legal and from a financial and from where the executives are going to be, certainly Switzerland is that headquarters. To our customers and to our associates, I think that the excellent work that is being done today in developing products in Munich and developing products and servicing customers out of Frankfurt and out of The Woodlands, out of Everberg, out of Basel, Switzerland, out of Shanghai, these are all headquarters to our customers. These are all centers of excellence in operations.
Like Hariolf, I spend probably three weeks of every month on a plane flying around, and my office is probably as much Lufthansa as it is my office in The Woodlands. I would just say that we are going to make great utilization of the talent and the people wherever they are located. I don't see people really changing around because of headquarter locations.
From our point of view, let me add, we don't really understand why we focus on locations. Everything which is on a legal base is very clear. We have a clear understanding. In times of digitalization, of globalization, as Peter said, you can manage the company out of a plane. In a regular month, without these kind of transactions, I spend maybe seven, eight days in my office in Pratteln, and the rest I am internationally on the road. Therefore, I think we have more important things to discuss than where is the headquarters A and where is the headquarters B.
Maybe I can shed light on slide 13. Four quadrants, three of them for Huntsman are ex Venator or without the Pigments and Additives business, assuming it had been separated. You're right, at the bottom right-hand corner, Huntsman Corporation debt and leverage does not assume that, but we provide a pro forma for the combined businesses, assuming Venator has been taken public and has been completely sold down. That includes debt and equity proceeds and is net of taxes. It does not include an additional roughly $250 million of pension liabilities that will go with the business.
Going back to your question on the breakup fee, it is determined a sliding north of $200 million in case one party should terminate the transaction.
Thanks.
All right.
The next question is from Alexander Loren from Jefferies. Please go ahead.
Good morning. Two quick ones. First, on further activity, is this it for a while? Some of the end markets you touch are also consolidating. Do you want to participate in that? Do you have the bandwidth? Secondly, can you speak a little bit about the operating cultures, where you see what you can learn from each other and what you see as areas you need to focus on?
If I can take just a minute or so, Hariolf can probably give a much better follow-up. As we look at the cultures and so forth of the various businesses, look, I think there are a lot of things that Huntsman does very well. We've proven that in the marketplace, and we've proven that in our ability to create shareholder value. However, as I look at Clariant, I look at a business that has done a fantastic job in really building out very aggressively their Performance Products, their differentiation, their specialty chemicals, and those things that we have told the market for the past year, where we want to be going as a company.
I think that that discipline to research, that discipline to developing new products and so forth, frankly, for Huntsman, will be something that we'll really look at as a great opportunity to be able to expand our horizons and to become an even better company. I think what's important here, this new company is not just Huntsman on steroids, nor is it a larger Clariant. The new company is just that, a new company. This is beyond a merger of equals. It's a merger of opportunities. Both companies will bring unique cultures, unique disciplines, unique routes to market, balance sheets and so forth to the overall combination that I think will really strengthen our position with investors and shareholders and customers and our associates.
Talking about the culture, I think everything is already being said by Peter, but both companies do have a different culture for sure. As Peter rightly said, we do not want to enlarge Clariant and have enlarged Huntsman. We do not want to have a HuntsmanClariant in 3 years with a Clariant culture or a Huntsman culture. I think our people are mature enough to take this opportunity of a new company and just craft their own storyline. I think integrating businesses or integrating service units is one aspect of the entire process. I don't know if you can integrate or change cultures.
I think it is extremely important that in HuntsmanClariant, starting from the Chairman of the Board and the CEO and the Executive Committees and the Global Management Team, everybody has to spend a lot of time being present in the company and just try to avoid frictions and tensions and create what I said, a new company.
I will just add that I think one of the early examples of cooperation, while Hariolf and I have been working here for 8 years on a mutually compatible relationship, friendship, and all that, we really put our teams together 3 weeks ago to put together a transaction that essentially creates a $20 billion total enterprise value company in 3 weeks. That was the first time any of our management teams had even met each other. In that time, they came up with the $400 million of synergies. This was not a top-down number.
This was not a number that Hariolf or I came up with and said, "Need it." This is something that came up from the bottom up, people being challenged, but it goes to speak to the professionalism of two very diverse cultures being able to come together and become even better the sum of the parts. I think that we've got a great opportunity before us to really, on both sides, to learn, expand, to grow, and to take advantage.
Appetite for consolidation or further M&A?
Well, I think that we certainly will have a balance sheet that will enable a size of a company and a balance sheet. Traditionally, for Huntsman at least, bolt-on acquisitions have been in the low tens of millions of dollars. The size we are today, the balance sheet, and the abilities we have today, I imagine that our ability to have bolt-on acquisitions going forward will be significantly larger and will be a much wider envelope as we look at the chemistry applications, geographies, downstream growth opportunities, and so forth.
Great. Thank you.
The next question is from Paul Walsh from Morgan Stanley. Please go ahead.
Thanks very much. Afternoon, guys. I got three questions, please. First, on the synergies. Given the lack of product overlap, and I think you said no real revenue synergies, can you give some practical examples of the types of procurement synergies that you want to deliver? On the operational side as well, you talked there about some bottom-up analysis delivering the $400 million. Maybe a bit more flesh around exactly what kind of projects we're talking about. My second question was just come back to some of the expected growth and margin targets across the different business units. Polyurethanes is obviously a hot topic of debate at the moment, and you guys are one of the industry leaders in MDI. It seems, at least on the face of it, some rather aggressive margin assumptions for that business.
I wonder if you could help me understand how you see the cyclicality of that industry against those margins. Also on textiles, it's a business Clariant got out of some years ago. Just wondering if the pro forma portfolio could also be subject to further changes as we go forward. Thank you.
Well, perhaps I can answer the last one first, just as we talk about textiles here. Look, our objective is to create as much shareholder value as possible. I'll say unequivocally right out of the chute, we're not going to come out on day one and look at spinning businesses. However, as we continuously look at our portfolio, if we have businesses and divisions that don't carry their fair share, that are not generating the sort of shareholder growth and creation, then we'll take a very thorough analysis of that business. I think for those of you that have followed Huntsman, remember that in the past, we said the same thing about Textile Effects, and if we didn't see double-digit sort of percentage EBITDA margins and return on net assets, that we would get rid of it. We see that today. It's an improving business.
Now, if we think that that division or any division is going to be a drag on the overall business, I think that the management of this company will act decisively, and we'll be committed to do whatever we have to do to maintain and to grow shareholder value.
All right, coming back to the first question, Paul, on the synergies. Indeed, the first work resulted in a $400 million synergy estimate. It is really the result of a deep work of a combined group, and we found many areas where you can actually find an optimization within both groups. For instance, if you take procurement, we looked at direct spend and indirect spend. Just to give you an idea, we have a direct spend now as a combined company of more than $6 billion. We have indirect spend of more than $3.5 billion. That's where we need to work in the categories, in the detail, and we are fairly sure we can extract here quite a lot, and $150 million is our first guess at this number. If you obviously look and combine two groups, you'll have overlap.
You'll have overlap in the back office, you'll have overlap in the company structures, you'll have overlap in processes, and we looked at all that in terms of transactional processes on IT, for instance, on finance, on HR. That's where you find really that it makes sense to combine both companies, and that really is the underlying base for finding $250 million operational synergies.
I think you mentioned Polyurethanes and-
Yes, please.
You referenced slide seven, I believe.
That's right.
We have targeted 16%-18% margins. As you know, currently the business in the last few quarters has been on the low end of that, roughly 15%-16% EBITDA margins. Remember, that reflects an empty