An increasing number of major global chemical firms are adopting a similar approach to constructing their companies: assembling a handful of diverse and established chemical and material businesses each with a high manufacturing entry barrier. Lux calls this approach the Multifortress Strategy. The high entry barrier creates the fortress-like nature of the individual businesses. The revenue of the various businesses added together creates a corporate entity of sustainable size. The multiple businesses also offer some protection from a downturn in one or a few businesses. Continue reading
On May 22, Switzerland-based Clariant and U.S.-based Huntsman announced that the two firms would merge and create a new combined company, the unimaginatively-named HuntsmanClariant. With little business overlap and few technical synergies between the two firms, the prime motivation of the merger is simply to create a larger firm. The combined firm would have had $13.2 billion in revenue in 2016 (excluding Huntsman’s Pigments and Additives business, which is to be spun out as Venator Materials this summer), making it the second largest specialty chemical company in the world behind Evonik at $15.2 billion and just ahead of Covestro also at $13.2 billion. Clariant and Huntsman believe that within the next 10 years, the specialty chemical industry will be dominated by six to eight global companies, each with sales in the $14 billion to $17 billion range. The two firms believe this merger will put them in a strong position to be one of the survivors.
As shown in Figure 1, HuntsmanClariant will consist of eight specialty chemical businesses, four from each company. Over time, the firm may off-load its two lowest-margin businesses, Clariant’s Plastics and Coatings and Huntsman’s Textile Effects. Huntsman had previously attempted to sell Textile Effects as part of its Venator spin-out, and Clariant has floated the idea of selling Plastics and Coating in 2015, and continues to do so.