Deal Reporter
* Scale impedes competitiveness on global basis - bankers
* Evonik seen under pressure to do deal
* Clariant has no hostile bid defence mechanisms
Clariant AG [VTX:CLN] may not be able to resist takeover approaches as long as momentum for consolidation in the sector gathers pace and it lacks the scale to be a global player, three bankers said.
Even if Clariant continues to claim it is not for sale, it is still an obvious target and will not be able to remain a standalone entity, one banker said. “If you’re not a company with EUR 10bn revenue, you’re too small to be a global player.” Clariant cannot continue to be globally competitive as a standalone company, two other bankers agreed.
Clariant declined to comment on market speculation.
Evonik Industries AG [ETR:EVK], Dow Chemical [NYSE:DOW] and Johnson Matthey [LON:ETR] have all been tipped as potential bidders for Clariant. Reports last month claimed Evonik was preparing a CHF 23 per share offer, but these were swiftly shot down by Clariant management. Clariant’s chairman Rudolf Wehrli publicly rejected the idea of a takeover by Evonik, while a company spokesperson said there had been no formal talks between the two companies.
Clariant’s management will not consider its job done, and is unlikely to willingly cash out at CHF 23 per share, the second banker said. But, a hostile bid cannot be ruled out, he said.
The protective mechanisms Clariant once had against hostile bids are now lapsed or irrelevant, two bankers said. A Clariant spokesperson declined to comment on the existence of any hostile takeover protections. The company’s articles of association do not mention any impediments to unsolicited or hostile takeover approaches.
The third banker said the 27% premium implied by the rumoured CHF 23 per share offer was “not great”, but it offered a decent 10x EV/EBITDA valuation. Shareholders would likely sell if a slightly higher premium was offered, this banker and the first one said. Clariant’s shareholders would be unlikely to back the company’s present strategy in the face of a decent premium, a fourth banker agreed.
Clariant has been giving some bullish guidance – targeting between 16-19% EBITDA margins - but has not been able to hit those targets, the second banker said.
The company’s 2014 overall EBITDA margin was 14.2%, up from 14.1% in 2013. Group sales increased by CHF 40m to CHF 6.116bn over the same period and net income decreased 37% to CHF 235m. Earnings per share are at their lowest point in at least five years at CHF 0.55.
In addition to this, it trades at a discount to its peer group. Clariant was trading at 9.1x EV/EBITDA on Tuesday before a slight bump on renewed speculation today. Croda International [LON:CRDA] was trading at 15.1x, Johnson Matthey was at 13.7x, Koninklijke DSM N.V [AMS:DSM] was at 11.1x and Evonik was trading at 9.49x EBITDA.
While bankers agreed that Clariant’s management are well regarded, they did not see it insulated against a potential hostile approach if it takes a firm stance against approaches.
All four bankers saw Evonik as a potential hostile bidder. Evonik is under pressure from its shareholders to make a transformational acquisition, the fourth banker explained.
US majors Dow and E I DuPont De Nemours [NYSE:DD] have the balance sheets to acquire but are not as likely given they both have activist investors to satisfy before splashing out on potentially high-premium acquisitions, said the second banker. Clariant also has a high European cost base, he said.
BASF AG [ETR:BAS] could also look at a bid, he said.
Meanwhile Evonik has also been linked to a potential bid for DSM and Croda. DSM could be a good target because it has just gone through a restructuring, the first and fourth bankers said. However it is slightly too big for Evonik, the fourth banker said. A deal with DSM would need to be a merger of equals as it was a large and a “national champion” in the Netherlands, the second banker agreed.
Croda on the other hand could be too small for Evonik’s transformational deal, said the fourth banker. There is also the view that its valuation is too high, said the first and second bankers.