Aug. 27 (Bloomberg) -- First Reserve Corp. and SK Capital Partners agreed to acquire TPC Group Inc., the world’s largest producer of butadiene, for $628 million as supplies of the chemical used to make synthetic rubber become scarce.
Investment funds backed by First Reserve and SK Capital will pay TPC shareholders $40 a share in cash, Houston-based TPC said today in a statement. That represents a 1 percent premium to the Aug. 24 closing price. The transaction including assumption of net debt is valued at about $840 million, according to data compiled by Bloomberg.
TPC, formerly known as Texas Petrochemicals Inc., increased butadiene prices 56 percent last year as competitors cut production. Most rivals produce butadiene as a byproduct of making ethylene from the oil-derivative naphtha, a process that’s fallen out of favor as low natural-gas prices prompt a switch to gas-based feedstocks such as ethane.
“We continue to believe $40/share would be viewed as inadequate by many shareholders, below where the stock was earlier this year and last year,” Edward Yang, an Austin, Texas-based analyst at Oppenheimer & Co. who recommends buying the shares, said in a note today. The acquisition price represents 10.4 times estimated per-share earnings in 2013, he said.
Low gas prices have caused butadiene supply to drop by 25 percent in five years, Yang said. The global butadiene deficit will expand to 1.7 billion pounds by 2016, he said.
The purchase price is a 20 percent premium to its July 24 price, TPC said. That’s the day before Bloomberg News reported the company may go private.
TPC rose 1.5 percent to $40.19 at the close in New York.
TPC directors formed a special committee in late 2011 to review strategic and financial alternatives. It’s the fifth largest U.S. chemical transaction this year, and the eighth biggest worldwide, according to data compiled Bloomberg.
“First Reserve is looking forward to helping TPC Group expand its core business to capitalize on the advent of the shale plays in North America and the resulting increase in supply of natural gas and natural gas liquids,” Neil Wizel, a First Reserve director, said in the statement.
TPC can produce as much as 765,000 metric tons of butadiene a year, according to the San Francisco-based research company Nexant Chemsystems. Its butadiene rivals include LyondellBasell Industries NV, Royal Dutch Shell Plc and Exxon Mobil Corp.
The transaction requires approval of TPC shareholders and antitrust regulators. The company plans to ask investors to approve the transaction at a special meeting of shareholders. Stockholders representing 22 percent of shares support the deal, TPC said.
TPC’s financial adviser is Perella Weinberg Partners LP and its legal counsel is Baker Botts LLP. Skadden, Arps, Slate, Meagher & Flom LLP provided legal advice to the board committee.
First Reserve and SK Capital got financial advice from Jefferies & Co. and legal counsel from Simpson Thacher & Bartlett LLP. The firms obtained financing commitments from Bank of America Merrill Lynch, Morgan Stanley and Jefferies.
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