Clariant Makes Waves With a Triple Shock

26.07.2019 -

For two days this week, Clariant dominated European business and stock market news. After dropping the first bombshell on Wednesday (Jul. 24) that its CEO, Ernesto Occhiello, had resigned for personal reasons, on Thursday the Swiss specialty chemicals producer had a few more munitions to unleash. These landed mostly on itself and its share price, which forfeited 10%.

Those looking on were divided as to which of the bombshells dropped on “day two” was the most stunning – the news that the Basel-based group and its anchor shareholder (24.99%), Saudi Arabian petrochemicals giant SABIC, had “temporarily suspended” plans announced last year to create a joint venture in high performance plastics or the announcement that Clariant planned to divest most of its Plastics & Coatings business, which represented half of its overall sales in the first six months of this year.

As speculation continued as to the reasons behind the series of unexpected developments, management produced a statement stressing that there was no connection between the two major decisions and the CEO’s departure.

Occhiello’s resignation was sealed before the Swiss and Saudi negotiating teams had come to a decision to call off the jv, Clariant’s former chief executive and current executive chairman, Harriolf Kottmann, asserted. He also denied that there was any animosity between the two Italian and German managers.

In separate, but largely identical communications, Clariant and SABIC explained that the suspension of plans reflected the currently unfavorable conditions in the markets for products that would have been part of the jv and that the decision was made in the interest of the respective shareholders.

During an online financial results presentation Thursday afternoon, Kottmann added that the two would-be partners were unable to agree on a value for the assets Clariant intended to bring into the jv. Acknowledging that market value had shifted since the ideas of a joint company was first floated in 2018, he said SABIC saw the activities as being worth less than Clariant did.

Original plans for the new plastics company foresaw combining Clariant’s masterbatch, pigments and additives assets with parts of SABIC’s specialties portfolio. Pigments were dropped from the jv plans in September 2018 and earmarked for divestment.

While both players stressed on Thursday that the joint venture talks would be resumed when market conditions improved, some commentators said they failed to see what basis for a fusion still existed if the masterbatch business – Clariant is a leading player – was no longer part of the Swiss group.

In the conference call, Kottmann and CFO Patrick Jany declined to dwell on the question of whether SABIC due to the changed parameters might want to divest its entire shareholding in Clariant and pursue a more lucrative partnership.

SABIC acquired the Clariant stake in 2018 from corporate raider White Tale, which had previously torpedoed the Swiss group’s plans to merge with US chemical producer Huntsman. British business newspaper Financial Times has speculated that state-owned Saudi Aramco, which in March 2019 acquired SABIC from the Kingdom’s sovereign wealth fund, might have pulled the plug on the Swiss deal.

The Clariant group’s financials were strained in the 2019 first half. Overall sales were flat at 2.2 bn Swiss francs, but adjusted EBITDA deteriorated by 70% due to a one-off provision of 231 million Swiss francs in connection with an ongoing EU investigation into alleged anti-competitive ethylene purchasing.

From the second half of 2019, Clariant said it will concentrate on its three core business areas. Care Chemicals reported sales of 850 million Swiss francs in the first half, with EBITDA pre-exceptionals at 154 million francs. Catalysts posted sales of 432 million francs and EBITDA pre-exceptionals of 88 million francs. Natural Resources had sales of 947 Swiss francs and EBITDA pre-exceptionals of 148 million franc. In future reporting, additives will be included in Natural Resources.

Plastics and Coatings, reported as a discontinued business, had sales of 1.1 billion francs, in H1,with masterbatches and pigments impacted by softer demand in China and the slowdown in the global automotive sector.

Kottmann said proceeds from the divestment of the plastics assets will be invested in innovation and technological applications within the core business areas, as well as to strengthen Clariant’s balance sheet and return capital to shareholders.