Talk of selling gives shares of Huntsman a 7% boost

Shares of Huntsman Corp., the fourth-largest U.S. chemicalmaker, rose 7.4 percent Wednesday -- the highest since August -- after the company said it may sell itself and that talks have been held with prospective buyers.

Huntsman jumped $1.60 to close at $23.22 in New York Stock Exchange composite trading, giving the company a market value of $5.12 billion. Huntsman rose 11.4 percent Tuesday after The Wall Street Journal reported the possible sale.

Discussions have been held with a number of potential acquirers or merger partners since a potential buyer approached late last year, Salt Lake City-based Huntsman said Tuesday. Buyout specialist Apollo Management LP is a leading candidate, and other private- equity firms have expressed interest, the Journal reported.

"We believe an acquisition or merger of Huntsman is likely," Deutsche Bank analyst David Begleiter said Wednesday in a note to clients. "We continue to believe a takeout price of roughly $25 a share is the most likely scenario," though multiple offers may drive the price higher, he said.

Before Tuesday, Huntsman shares had fallen 16 percent since they were sold to the public on Feb. 10 last year at $23 a share.

An Apollo spokesman declined to comment Tuesday.

Huntsman is controlled by investor David Matlin and billionaire Jon Huntsman. His elder son, Jon Huntsman Jr., is the governor of Utah, and the younger son, Peter Huntsman, is Chief Executive Officer of Huntsman Corp.

All parties involved stand to benefit, Begleiter said. MatlinPatterson Asset Management, which holds 35 percent of the shares, would cash out its investment at a premium before chemical profits erode, he said. The Huntsman family could

roll its 24 percent stake into a private company after public investors failed to boost the shares.

Current Huntsman investors would probably get more than $23 a share, and the successful buyer would get Huntsman for less than it is worth, said Begleiter, who urged clients to buy the shares. Deutsche Bank helped underwrite Huntsman's IPO.

UBS Securities analyst Jeffrey Cianci said the buyout talks could boost Huntsman's share price to $28. He recommends buying the shares.

"This is a well-run, diversified company, and there could be even more value in a breakup of the divisions," Cianci said Wednesday in a note to clients.

A private equity buyer might separate Huntsman's commodity and specialty businesses, add previously acquired assets, and sell them as two separate companies, Greenwich Consultants founder Michael Judd said Tuesday in a telephone interview from Rumson, N.J. He recommends buying Huntsman shares with a price target of $25.

Dow Chemical Co., the largest U.S. chemical maker, and BASF AG, the world's biggest chemical maker, are potential buyers because they have enough cash and would have strategic fits with Huntsman assets, Morgan Stanley analyst Kunal Banerjee said Tuesday in a note to clients. BASF spokesman Timothy P. Andree and Dow spokeswoman Terri McNeill declined to comment Tuesday.

Chemical profits have been improving as economic growth boosts demand faster than production capacity is added, prompting a spate of acquisitions. BP Plc, Europe's biggest oil company, last month sold its Innovene chemical division to Ineos Group Holdings Plc for $9 billion. BASF has made a $4.9 billion hostile bid for Engelhard Corp. of Iselin, N.J.

Huntsman has one of the industry's most attractive products in MDI, or diphenylmethane diisocyanate, which has 20 percent profit margins and is growing at 6 percent to 8 percent a year, Begleiter said Tuesday. Huntsman is the world's largest producer of MDI, used to make foam insulation and furniture.

MDI helped Huntsman almost double polyurethanes profit in the third quarter to $193.7 million. Polyurethanes are "the key strategic interest in any takeover," JP Morgan analyst Jeffrey Zekauskas said Tuesday in a note to clients. He rates the shares "neutral."

Huntsman's $4.25 billion in net debt as of Sept. 30, its involvement in slower-growing European markets, and its higher-cost commodity assets may dilute the appeal of polyurethanes, the company's most profitable segment, Zekauskas said.

"We are doubtful that Huntsman can be acquired at a significant premium," he said in the note.

Merrill Lynch analyst Donald Carson, the top-rated commodity chemicals analyst in an Institutional Investor survey, downgraded the stock Tuesday to "neutral" from "buy," saying the price was near his target. Huntsman could be sold for $19.50 to $28 a share, he said. Merrill Lynch helped underwrite the IPO and does investment banking with Huntsman.

Merrill Lynch & Co. and SG Cowen & Co. have been hired as financial advisers and Vinson & Elkins LLP and Weil, Gotshal & Manges LLP will provide legal advice, Huntsman said.

In November, Huntsman reported a third-quarter net loss of $29.8 million as plant maintenance and Gulf Coast hurricanes reduced output. The company said storm damage and lost output will cut fourth-quarter profit $130 million.

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