Germany: Memorandum of Understanding Clariant and Sabic Outline Intended Transaction

Editor: Alexander Stark

Clariant announced an updated strategy and financial outlook as well as the signing of a Memorandum of Understanding with Sabic on the collaboration between the two companies in the area of high performance materials.

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The intended transaction is to combine Clariant’s Additives and high value Masterbatches with parts of Sabic’s Specialties business
The intended transaction is to combine Clariant’s Additives and high value Masterbatches with parts of Sabic’s Specialties business
(Source: Scänderberg Sauer Photography/ Clariant)

Muttenz/Switzerland — In an announcement, Clariant said that it intends to expand more strongly by focusing on customer-specific products and solution offerings with attractive growth prospects and above average value potential.

By 2021, following the creation of High Performance Materials and the divestment of the remaining Plastics & Coatings Business Area, the company expects to deliver significantly higher sales of around $ 9.3 billion and an Ebitda margin of approximately 20 % with an operating cash flow of more than $ 1.24 billion.

According to Hariolf Kottmann, CEO of Clariant, the portfolio upgrade together with the continuation of their business strategy enabled the group to realize a significant step change into higher value specialties, which would allow the company to considerably augment value creation for all our stakeholders.

The intended combination of Clariant’s Additives and high value Masterbatches (color, high temperature resins and health care) and parts of Sabic’s Specialties business would create a uniquely positioned provider of highly customer-specific high performance materials and solutions under the name High Performance Materials, the company stated.

This new Business Area will offer a customer-specific product range of high-performance thermoplastics for demanding thermo-electro-optical and mechanical environments, specialty additives and masterbatches in tandem with an outstanding global compounding platform. Major applications include smart electronics, health care, aerospace, automotive, robotics, additive manufacturing, renewable energy, and e-mobility.

Significant Synergies Expected

The company is convinced that High Performance Materials’ ability to meet customer specifications and provide technological advantages will create the basis for an accelerated profitable growth. This foundation in tandem with cost synergies and enhanced operating efficiencies would fuel substantial profitability progression and unlock greater value creation. By 2021, sales of High Performance Materials are expected to grow to approximately $ 4.15 billion from pro-forma 2017 sales of $ 3.1 billion and the Ebitda margin, including synergies, to 24 to 25 % from 19.4 % in pro-forma 2017.

The combination is expected to result in significant synergies with an anticipated annual run-rate of $ 103.7 million, realized over three years from closing. Implementation costs are estimated at $ 83 million over the same time.

Clariant will have the majority stake in the intended business combination. Depending on the definitive valuation which is to be determined by both parties in the coming months, an equalization consideration will be made by Clariant to Sabic.

Divestment of the Remaining Plastics & Coatings Businesses

In addition, the German group announced that by 2020 it intends to divest the Pigments, standard Masterbatches and Medical Specialties businesses which will not be included in the newly formed Business Area High Performance Materials. This divestment decision is part of the company's strategy to move the portfolio into higher specialty areas and to ensure best ownership for each of its businesses.

Following a strategic review the speciality chemicals producer also announced new targets for 2021 in each Business Area. Profitable growth would be driven by sustainable innovations and specialized customer solutions which met the demand for convenience, safety, sustainability and energy efficiency, they stated. With the strategic update and the resulting higher earnings quality, Clariant also changes its Ebitda margin target from previously “before exceptional items” to “after exceptional items” going forward. As a consequence, the company’s financial reporting will be changed accordingly beginning in 2019.

With Clariant’s new High Performance Materials Business Area and the outlook at Care Chemicals, Catalysis and Natural Resources, the group is convinced to be able to provide an enhanced portfolio and solution offering. This would facilitate the ability to better realize its full potential and deliver higher growth and profitability faster. Furthermore, the resulting increase in earnings quality and operating cash flow would enable the group to uphold an attractive dividend policy, i.e. to increase or at least maintain the absolute dividend amount in Swiss francs every year.