TPC Group Inc., the largest producer of a chemical used in synthetic rubber, is in exclusive talks to go private in a leveraged buyout that may fetch more than $600 million, said people familiar with the matter.
TPC may get about $40 a share in the deal, which could come in a few weeks, said the people, who asked not to be named because the discussions are private. The $600 million doesn’t include debt.
A takeover of Houston-based TPC, which used to be known as Texas Petrochemicals Inc., would represent a bet on continued scarcity of the rubber component butadiene. The chemical is a byproduct from making ethylene, and slumping natural-gas prices in the U.S. have led ethylene producers to use more of the fuel in the process, which yields less butadiene than other methods.
“They control a third of the North American supply of what should become a very scarce commodity going forward,” Edward Yang, an Austin, Texas-based analyst at Oppenheimer & Co. who recommends buying the shares, said today in a telephone interview. “That gives them a lot of avenues to increase their earnings.”
Miguel Desdin, a TPC spokesman, declined to comment.
The negotiations come after talks earlier this year, which involved chemical makers as well as buyout firms, collapsed following a jump in TPC’s share price, the people said. The stock had climbed 43 percent this year through yesterday. TPC jumped 16 percent to $38.97 in New York, the biggest gain since Nov. 30.
A takeover at $40 would value TPC, including net debt, at about 7 times the company’s $126 million estimated earnings before interest, taxes, depreciation and amortization for the year. That estimate is the average from two analysts surveyed by Bloomberg.
TPC competes in the market for butadiene with LyondellBasell Industries NV, Royal Dutch Shell Plc, and Exxon Mobil Corp. TPC is the best “pure play” in the butadiene market, Yang said.
The company plans to increase its butadiene output by refurbishing a Houston plant to make the chemical from butane, a component of gas that has increased in supply with production from shale rock formations.
Average contract prices for butadiene climbed 56 percent in 2011 amid tight supplies, according to a company filing.
TPC’s origins date back to a pair of plants built by the U.S. government to make synthetic rubber during World War II. The company declared bankruptcy in 2003 amid the collapse in demand for MTBE, a gasoline additive it produced. It emerged the following year.
Apollo Global Management LLC, the private-equity firm run by Leon Black, disclosed in 2010 that it owned an 8.6 percent stake in TPC stock. The following year, it said it no longer owned any shares.