Activist investors unhappy with the merger plans of Clariant and Huntsman have joined forces to torpedo it.

The Corvex hedge fund of Keith Meister – a protégé of billionaire speculator Carl Icahn – and the 40 North fund of New York real estate investor David Winter with former Bear, Stearns financial analyst David Millstone, announced on Jul. 4 they have acquired a combined 7.2 stake in Clariant that they plan to  use as a wedge.

Both investment funds have been critical of the prospects for the US-Swiss merger, which was announced in May.

A spokesperson for the funds’ acquisition vehicle, White Tale, told international media, “there are excellent opportunities to unlock value from the many high quality businesses that currently comprise Clariant.  Unfortunately, we do not believe that the proposed merger with the Huntsman Corporation is one of those options.”

White Tale contends that the transaction lacks strategic rationale and undercuts Clariant's strategy of becoming a pure-play specialty chemicals company. It called on the Basel-based player’s other shareholders “to reject this value destructive merger."

The investors said Clariant would be exchanging almost half its shares for what is primarily a commodity and intermediates business that will further dilute its multiple and create a larger conglomerate discount.

In announcing their plans earlier, the Swiss and US chemical producers said the all-stock transaction would create a company with an enterprise value of around $20 billion, majority owned by Clariant with 52%.  CEO-designate of the merged firm, HuntsmanClariant is Huntsman CEO Peter Huntsman, with Clariant CEO Hariolf Kottmann holding the title of chairman.

The two boards of directors have already approved the merger, which they said will create a leading global specialty chemical company with sales of around $13.2 billion, an adjusted EBITDA of $2.3 billion and annual cost synergies in excess of $400 million, to be achieved by reducing operational costs and improving procurement.

Some observers saw the power grab by the activists as aimed at triggering a bid for Clariant by an industry bidder that would drive the share price the company funds generally see as a bigger prize than family-owned Huntsman. Names tossed into the ring included Evonik, Lanxess and BASF. Some of them are said to have expressed interest in Clariant at some time in the past several years.

Many analysts reacted to the news saying they regard the Swiss company as the more attractive asset. Some in the past had criticized the fact that the merger partners have too little overlap in their portfolios and no synergies in their manufacturing assets, as this would rob the new company of potential for rationalization moves such as plant closures. At this stage, however, some stressed the plans would be hard to undo.

Clariant had previously acknowledged the increased shareholding by Corvex, adding that it has been in contact with the fund since it initially bought into the company in 2016. “As with all our shareholders, we maintain an open dialog with them,” a Clariant spokesman told the news agency Reuters.

No date has yet been set for Clariant shareholders to vote on the merger; however, a source told Reuters that a meeting would be scheduled only after Huntsman spins off its titanium dioxide business into a separate firm named Venator, as announced at the beginning of this year.

The transaction is targeted to close by the end of 2017, subject to all approvals.