Manufacturing Industry

Ciba and Clariant in 'merger of equals.'

Chemistry and Industry, Nov 16, 1998

Swiss rivals Clariant and Ciba Specialty Chemicals are to merge to create the world's largest speciality chemicals company and the fourth-largest chemicals manufacturer in Europe.

The new company will be far and away the dominant player in the $100bn/a specialities market with annual sales of SFr19bn ($13.5bn). Its nearest rival, ICI, has sales of around $6bn/a.

Describing the deal as a merger of equals, the companies said that Clariant would make up 54% of the new group and Ciba would form the other 46%. The merged company will be called Clariant and will use Ciba's butterfly logo.

The merger would yield annual cost savings of around SFr600M by 2001, the companies said. This would be made up of existing SFr100M programmes at Clariant and Ciba plus merger-related savings of SFr400M/a. Around 3000 jobs are expected to be cut from the joint workforce of 55,000. One-off restructuring costs would be around SFr800M.

Clariant chairman Rolf Schweizer will become chairman of the board and president of the new company while the chief executive role will be filled by Ciba Specialty's chairman Rolf Meyer.

Schweizer said that 'New Clariant' would achieve the separate objectives of the two companies faster, more efficiently and with less risk than if they had gone it alone. Speaking at the launch of the merger, he said that he had initiated talks six weeks ago after it became apparent that Ciba and Clariant had similar objectives, strategies and product portfolios.

The companies expect to sign a definitive contract in December, seek shareholder approval in late January and then ask for regulatory clearance. Schweizer said he expected the European Commission, the US Federal Trade Commission and German competition authorities to examine the proposal. Final clearance should be in place by September 1999, he said.

German life science and chemical group Hoechst, which owns 45% of Clariant, has told the companies that it will support the deal. Hoechst amalgamated its speciality chemicals interests with Clariant 18 months ago and will hold a reduced stake in the new group once the merger is completed.

Key figures, 1997, SFrM

                         Ciba      Clariant

Sales                    9005(*)    10,184
Operating income          854         1030
Earnings before taxes     728          737

* Pro forma sales including the revenue of Allied Colloids, acquired
in March 1998. Ciba's 1997 sales were SFr7822M.

Source: Ciba Specialty Chemicals/Clariant

New Clariant will have interests in 30 of the 40 speciality chemicals market segments through five business units - additives & water treatments, cellulose ethers, process chemicals, fine chemicals and colours. Its core activities will be additives, colours, masterbatches, surfactants and process chemicals. R&D spend will be around 3.6% of sales (SFr650M/a), a level the companies said was 'unprecedented' in the industry. The R&D programme will have six main strands (see Table).

The new company would set a growth target of 1.5 times GDP and aim to lift profit margins above 20% of sales within three years, Meyer said. It would submit an application to join the Swiss stock exchange but would eventually seek a listing in New York.

Analysts welcomed the deal. 'It's a good merger,' said Dresdner Kleinwort Benson's Peter Mackey. 'They fit pretty well. We were speculating about this when Ciba was floated off from Novartis in 1997; it looked like the logical move. We thought the Clariant/Hoechst deal had put a spanner in the works, but obviously not.'

The merger could unleash a round of restructuring in the fragmented US speciality chemicals industry but Europe was unlikely to follow suit, Mackey predicted. 'It's hard to see who is going to merge with who,' he said.

Credit rating agency Standard & Poor said the merger would redefine critical mass in the industry. The merged group would be 'excellently positioned' to cut costs, it said.