FRANKFURT/LONDON (Reuters) - Doubts are growing among Clariant CLN.S investors whether the Swiss chemicals maker will be able to drive through a $20 billion merger with Huntsman Corp HUN.N in the face of opposition from an activist investor.

The logo of Swiss specialty chemicals company Clariant is seen at the company's headquarters in Pratteln, Switzerland August 9, 2017. REUTERS/Arnd Wiegmann

White Tale Holdings became the largest shareholder in Clariant last month with a 15.2 percent stake, and a source close to the investor told Reuters it was likely to buy more stock ahead of a shareholder vote on the deal.

Both sides are gearing up for a fight.

White Tale representatives are in Switzerland this week to try to drum up support among other Clariant shareholders, people familiar with the matter said.

Clariant, for its part, is preparing a media campaign to try to rally retail investors behind the tie-up once a date has been set for the shareholder meeting later this year or early next, a person close to the company said.

In the meantime, even fans of the merger are questioning whether the deal will go through, with Clariant needing two-thirds support in the shareholder vote to prevail.

“We are supportive of the Clariant-Huntsman merger,” said Alex Roepers, CEO of the $1.3 billion Atlantic Investment Management, saying the stock could be worth 32 Swiss francs after integration versus 24 francs for Clariant alone.

“But though we’re maintaining a position in Clariant, we’ve sold some of the stock, because (White Tale) have a 15 percent stake and are trying to block the deal and they’ve not presented a convincing alternative.”

Atlantic has a 1.8 percent stake in Huntsman, according to Reuters’ Eikon data, and 0.72 percent in Clariant, according to a spokeswoman.

IN THE BALANCE

After years of mutual approaches, Clariant and Huntsman struck a deal in May to create a speciality chemicals firm that would be 52 percent owned by Clariant shareholders and target around $400 million in annual cost synergies.

But White Tale, a vehicle created by investor Keith Meister’s Corvex hedge fund and New York’s 40 North, came out against the deal in July, saying it would not deliver enough benefits and would expose Clariant to Huntsman’s debt as well as its volatile commodity chemicals business.

“I’m not a friend of the Huntsman transaction in its current form,” said Martin Lehmann, who manages the 3V Invest Swiss Small & Mid Cap fund. The fund has a 0.05 percent stake in Clariant, according to Eikon data.

“I don’t expect the deal to go through at the proposed terms. Clariant will hardly win the necessary two thirds of shareholder votes,” he told Reuters.

It is unclear how many other Clariant investors also oppose the tie-up, although shares in Huntsman - whose investors are widely viewed as getting the better deal in the merger agreement and are expected to wave it through - have dropped 2.1 percent since White Tale lifted its Clariant stake above 15 percent.

Clariant shares have gained 0.7 percent over the same period, reflecting the belief among some investors that the stock will benefit if the merger is struck down.

“We see no erosion of support and both Huntsman and Clariant are fully committed to the success of the merger,” a Clariant spokesman said.

A source familiar with Clariant’s thinking said the group’s management was bracing for While Tale to raise its stake further. White Tale declined to comment.

Among supporters of the merger, Barclays analyst Alex Stewart said in a Sept. 28 note that if it delivered the $400 million in targeted synergies Clariant shares could be worth 29 francs, up from current levels of about 23 francs.

“Without more concrete information about how White Tale intends to release value, the best outcome for shareholders appears to be a merger, according to our preliminary analysis. However, news that White Tale has raised its stake to 15 percent increases the risk of derailment,” he added.

“The worst-case outcome for Clariant is deal termination and White Tale walking away, or at least failing to gain credibility,” said Stewart, who has an “equal weight” rating on Clariant shares.

He said given an expected turnout at the shareholder meeting of roughly 75 percent, winning support from another 10 percent of the share capital could be enough for White Tale to win.