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TPC Investor Sandell Says $40-a-Share Buyout Is ‘Outrage’

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Aug. 28 (Bloomberg) -- Sandell Asset Management Corp., the third-largest shareholder of TPC Group Inc., said the chemical maker’s agreement to sell itself to private-equity firms for $628 million “grossly undervalues” the company.

First Reserve Corp. and SK Capital Partners’ agreement, announced yesterday, to buy the company for $40 a share is an “outrage,” Thomas E. Sandell, chief executive officer of New York-based Sandell, wrote in a letter to TPC’s board today. The price is “well below” Houston-based TPC’s 52-week high and includes little premium for a company that may trade for $55 to $57 a share in 12 months, he wrote.

“This appears to us to be a classic case where management, fully aware of the company’s significant inherent value and of the impending catalysts which will unlock it, deliberately fail to communicate that value to the market and instead attempt to steal the company at a grossly suboptimal price,” Sandell wrote.

TPC, formerly known as Texas Petrochemicals Inc., is the largest producer of butadiene, used to make synthetic rubber. Production of the chemical is dropping as other companies switch from oil-based feedstocks to using cheaper natural gas, which yields less butadiene.

TPC’s earnings should improve as demand for butadiene increases and it emerges from a year in which volumes were reduced because of work on processing plants, Sandell wrote.

“Recognizes Value”

“TPC Group believes this transaction appropriately recognizes the value of the company’s business and prospects and is in the best interests of its stockholders,” Jill Cassidy, a spokeswoman for the company, said today by telephone.

The transaction “is the result of a comprehensive review of the strategic and financial alternatives available to the company” and gives stockholders “an immediate cash premium,” she said.

TPC rose 1.7 percent to $40.88 at the close in New York. The shares have gained 75 percent this year.

The agreement with First Reserve and SK Capital gives shareholders a 1 percent premium over TPC’s Aug. 24 closing price, the last trading day before the transaction was announced, and a 20 percent premium to its price on July 24, the day before Bloomberg News reported the company may go private.

The transaction requires approval of TPC shareholders and antitrust regulators. Stockholders representing 22 percent of shares support the deal, TPC said yesterday.

Vote Against

Sandell plans to vote against the transaction and urged other holders to do the same. Sandell said it owns 6 percent of TPC. QVT Financial LP and Ramius Capital Group LLC are the largest shareholders, according to data compiled by Bloomberg.

TPC said yesterday that directors formed a special committee in late 2011 to review strategic and financial alternatives. Sandell said he told TPC CEO Michael McDonnell in an Aug. 15 phone call that investors are entitled to transparency if the company was pursuing a sale, and a formal auction process would maximize value.

The agreement was a “sweetheart” buyout “with a favored buyer in an impaired sale process at the bottom of the cycle,” Sandell wrote. “We intend to hold you responsible for this material breach of your fiduciary duty in approving this transaction.”

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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