Private Equity Takes Stake

Two recent deals demonstrate how private equity continues to reshape the industry’s landscape by assembling and building leading industry franchises. CVC Capital Partners’ (London) agreement to acquire Univar for about €1.52 billion ($2.1 billion) would further increase the number of top chemical distributors under private ownership (p. 6). Apollo Management’s (New York) agreement, through its Hexion Specialty Chemicals subsidiary, to acquire Huntsman for $10.6 billion, would create a $14-billion/year global differentiated and specialty chemical giant. A sale or merger of Huntsman was inevitable because the controlling shareholders were seeking to sell. Founder and chairman Jon Huntsman had publicly stated his intent to sell his stake in the company to fund his philanthropic efforts. Private equity firm MatlinPatterson (New York), which helped Huntsman avert bankruptcy in 2002 by agreeing to swap its Huntsman bond holdings for a big equity stake in the company, had also been looking to sell its stake, according to financial sources. The deal will likely face a lengthy antitrust review due to overlap in the epoxies businesses. Apollo appears determined to close the deal, betting $425 million that it can gain antitrust approvals. Apollo has agreed to pay Huntsman $325 million if the deal does not close due to the failure to obtain regulatory clearance or financing. It also agreed to pay half of the $200 million breakup fee to Basell. The process may be lengthy but Apollo appears confident that it can live with the conditions antitrust officials in Europe and the U.S. may impose.
Such deals contribute to the blurring of the distinction between “financial” and “strategic” buyers in the chemical industry. Some private equity firms are stepping beyond a simple “buy-and-flip” strategy, building scale, extending their geographic reach, and reducing cyclical risk by acquiring specialty and differentiated businesses. Such strategies previously were associated with industry buyers.