Brenntag SE, Essen, Germany, and Univar Solutions Inc, Downers Grove, Ill., both confirmed late on Nov. 25 that Brenntag is exploring the acquisition of Univar. The move would create the world’s biggest chemical distributor and establish a company with more than $30 billion in sales.
Brenntag shares fell sharply on Monday, Nov. 28, according to Bloomberg. Shares dropped as much as 11% in early trading. The stock was down 9.7% at 10 a.m. in Frankfurt, giving it a market value of €9.5 billion ($10 billion).
While Brenntag is a serial acquirer of smaller assets, a Univar takeover would mark its largest purchase by far and be a bold move for CEO Christian Kohlpaintner. The German company unveiled a new growth plan on Nov. 10 to “shape the future of its industry,” including organic re-investments and “value creating M&A activities.”
“Acquiring Univar would give Brenntag an unrivalled market position in the US, and generate important operational synergies, but it would not accelerate a mix shift towards higher margin, higher growth specialty chemicals,” Citigroup Inc. analysts wrote in a note.
Brenntag is the global market leader in chemical and ingredients distribution, with over 17,000 employees in 78 companies, according to its website. Univar, meanwhile, boasts one of the industry’s largest private transportation fleets, as well as a sales force and logistics team that helps connect chemical makers and buyers across sectors.
Univar is also no stranger to dealmaking. It merged with rival Nexeo Solutions Inc. in 2018 (GM Sept. 28, 2018) and then sold its plastics business in 2019. A combination with Brenntag would create an opportunity to boost growth and cut costs, but could also face tough antitrust reviews as national governments more closely scrutinize sector tie-ups.
“We believe such a transaction would be a logical step, creating a leading chemical distributor with significant competitive advantages over regional competitors in a period of accelerating industry transformation,” analysts at Jefferies Financial Group Inc. wrote in a note.
An investor in Univar is calling for the company to run a full sales process to maximize shareholder value. Engine Capital, which said it owns roughly a 1% stake in Univar, sent a letter to the company’s board on Wednesday, Nov. 28, arguing the approach confirms its view that the stock is undervalued.
While it commended Univar for its recently expanded share buyback program – something Engine Capital suggested in another board letter in October – it called for a full sales process now that the company is effectively in play.
“This strategic approach from a direct competitor confirms Engine’s view that Univar is undervalued in the public market and, in turn, a highly attractive acquisition target for qualified buyers,” Engine Capital Managing Partner Arnaud Ajdler and Partner Brad Favreau said in the letter, a copy of which was reviewed by Bloomberg.
Engine Capital argued that Univar could fetch $38 to $44 a share in a competitive auction.
Univar fell 1.5% in trading Wednesday to $32.33 at 9:44 a.m. in New York, giving the company a market value of roughly $5.3 billion. Shares in Brenntag were little changed.
“We value the view of our shareholders, and we will continue to make decisions and take actions that we believe are in the best interests of the company and our shareholders,” said Dwayne Roark, a spokesman for Univar.
A representative for Brenntag did not return a request for comment.
While Ajdler and Favreau acknowledged the industrial logic of the potential combination, they noted that private equity players have been active in the sector, including through past ownership of both Univar and Brenntag.
“We urge you to publicly announce a competitive and formal sales process that invites additional parties to bid for the company and ensures the board has all the information needed to make a value-maximizing decision that benefits all shareholders,” the pair said.