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Clariant's JV talks with SABIC collapse

Zurich

CLARIANT, whose CEO suddenly quit this week, said on Thursday that it and top shareholder Saudi Basic Industries (SABIC) had called off joint venture talks.

The the Swiss chemicals maker also announced a first-half loss hurt by charges booked charges linked to a European probe over competitive practices.

Clariant and SABIC, which holds a 25 per cent stake, had been working to combine Clariant's additives and specialty masterbatches businesses with parts of SABIC's specialty chemicals operation. Masterbatches include colours, additives and special effect concentrates for plastics used for products such as packaging.

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"Given the current market conditions, both parties have decided that temporarily suspending the negotiations is in the best interests of the respective shareholders of both companies," Clariant said. Clariant CEO Ernesto Occhiello who left abruptly this week had joined from SABIC just 10 months ago.

The Swiss firm said it would now look to sell its specialty masterbatches business along with other assets now on the auction block. Clariant, which had planned to use proceeds from divestments to pay SABIC for assets the Saudi company was placing into the JV now says cash from expanded disposals will go into technology investments, the balance sheet and to shareholders.

"What a mess!" Baader Helvea chemicals analyst Markus Mayer said in a note. "SABIC has an interest to fully take over Clariant. With the resignation of CEO Occhiello, who came from SABIC, and the termination of the JV negotiations, we think it is just a matter of time SABIC will come up with a takeover offer." Mr Mayer said the joint venture had been seen as one of the Swiss company's growth drivers.

With a market capitalisation of US$88 billion, SABIC is 13 times bigger than US$6.66 billion Clariant.

SABIC confirmed the talks have been suspended but in a statement added that it "looks forward to continuing the discussions with Clariant once conditions improve".

Saudi oil giant Aramco this year reached an agreement with the state-run Public Investment Fund to buy its controlling stake in SABIC for US$69.1 billion.

Mazen al-Sudairi, head of research at Al Rajhi Capital, said market conditions might be a factor for the shelving of the JV, as petrochemical prices are down globally and have hurt sector results. "Whenever there are any concerns or changes related to the economic cycle, M&A should be put on hold," he said, adding that SABIC learned that lesson when its US$8 billion acquisition of a unit of GE in 2007 was followed by the subprime mortgage crisis.

SABIC bought its stake in Clariant in 2018, arriving on the scene as a white knight to end the Swiss company's fight with activist investors who had previously blocked the Swiss company's proposed US$20 billion merger with US-based Huntsman Corp.

Clariant on Thursday also reported a first-half net loss of 101 million Swiss francs (S$140 million) versus a profit of 211 million a year earlier. Sales were steady at 2.2 billion francs. The results were impacted by a 231 million franc provision Clariant set aside for an ongoing competition law investigation by the European Commission.

"The first half-year 2019 was admittedly challenging - particularly the second quarter, which was additionally impacted by temporary negative influences and one-off occurrences," Clariant chairman Hariolf Kottmann said. Mr Kottmann, Mr chiello's predecessor as chief executive, has taken over his responsibilities until a successor is found. REUTERS