Huntsman shares plunge

Shares of Salt Lake-based Huntsman Corp., the fourth-largest U.S. chemical maker, plunged the most since its public offering a year ago Monday after the company broke off talks with potential buyers because their bids were too low.

Huntsman fell $1.90, or 8.3 percent, to close at $21.05 per share on the New York Stock Exchange, reducing the company's market value by about $419 million to $4.64 billion. The rejected bids were above the February 2005 offering price of $23 a share, Huntsman said.

Billionaire founder Jon M. Huntsman Sr. and investor David Matlin, who owns 35 percent, considered a sale after investors sent the shares down as much as 27 percent amid concern that rising costs will erode profit. Huntsman and Matlin aimed to shed their controlling stakes before chemical earnings begin to slide, Greenwich Consultants analyst Michael Judd said.

"They were unhappy with the stock price and looking for an exit strategy," Judd said Monday in a telephone interview. "It's no coincidence the company went public during the big euphoria" about resurgent chemical profits, Judd said. He recommends selling the shares.

Before Monday, Huntsman shares had risen 18 percent since Jan. 30, before talks were disclosed.

The company can boost its share price by continuing to generate cash for debt reduction and for investing in specialty chemicals, which are more profitable than commodity chemicals, said Jeffries & Co. analyst Laurence Alexander.

"It appears unlikely that another buyer would emerge with a significantly higher offer," Alexander said Monday in an interview from New York. "We expect them to remain in the trading range of the last few months until there is more clarity on their ability to improve free cash flow in 2006." He rates the shares "neutral."

Total debt was cut $1.86 billion, or almost 30 percent, to $4.44 billion as of Sept. 30 from $6.3 billion at the end of 2004, Huntsman said in November.

The stock probably will give back most of last week's gains of $3.55 per share, JP Morgan analyst Jeffrey Zekauskas said Monday in a note to clients. He rates the shares "neutral."

Discussions had been held with a number of potential acquirers or merger partners since a potential buyer made an "expression of interest" late last year, the company said last week. Spokesman Don Olsen declined to comment further, saying Huntsman won't discuss who made offers or how much they offered.

The offers "were not adequate, particularly in light of the risks, uncertainties and extended timing of the proposed transactions," Chairman Huntsman, 68, said in a Sunday statement.

Huntsman shares haven't reflected the full value of the company's differentiated businesses, which include advanced materials, polyurethanes and performance products, Huntsman said. The company will continue to evaluate alternatives to realize the potential of those businesses, he said.

"We have said since the early days of our IPO that a major part of the business plan was to invest in our differentiated businesses," Olsen said Sunday. "It is our intention to expand and grow those as the opportunities present themselves," including potential acquisitions, he said. Selling the units is not in the plan, Olsen said.

Huntsman's polyurethanes unit has one of the industry's most attractive products in MDI, or diphenylmethane diisocyanate, which has 20 percent profit margins and sales that are growing at 6 percent to 8 percent a year, Deutsche Bank analyst David Begleiter said last week in a note to clients. Huntsman is the world's largest producer of MDI, used to make foam insulation and furniture.

Huntsman is adding MDI production capacity in Asia, which could erode profit margins, Jeffries analyst Alexander said. Improved performance in MDI, the company's "crown jewel," as well as the advanced materials unit, could boost investors' perception of the company's value, he said.

"What we need to see is a couple quarters of better-than- expected results in those two segments," Alexander said.

Jon Huntsman founded the company in 1970 as a container maker, creating the Styrofoam "clamshell" boxes for McDonald's Big Mac hamburgers in 1974. His debt-financed acquisitions over the next two decades boosted 2004 sales to $11.5 billion on products such as laundry detergent ingredients, gasoline additives and plastics for car interiors.

Matlin got his stake by purchasing discounted Huntsman debt in 2001, when the company was overleveraged and near bankruptcy, which he subsequently traded for equity. His MatlinPatterson Asset Management holds 35 percent of the shares, and the Huntsman family owns 24 percent. Jon Huntsman's elder son, Jon Huntsman Jr., 45, is the governor of Utah, and the younger son, Peter Huntsman, 42, is chief executive officer of Huntsman Corp.

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's Zekauskas said in a note to clients last week.

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