First Reserve, SK Increase TPC Group Bid to $705 Million

First Reserve Corp. and SK Capital Partners raised their takeover offer for TPC Group Inc. 13 percent to $705.9 million to fend off a competing bid for the world’s largest producer of butadiene.

Investment funds backed by First Reserve and SK will pay TPC investors $45 a share in cash, up from $40 agreed to in August, Houston-based TPC said today in a statement. TPC also said it ended talks with fuel-additives maker Innospec Inc. and private-equity firm Blackstone Group LP and stopped providing them with due diligence information. TPC said Oct. 8 that Innospec and Blackstone made a non-binding offer of $44 to $46 a share.

TPC rose 3.6 percent to $46.49 at in New York. Innospec fell 2.7 percent to $31.46.

Sandell Asset Management Corp., the third-largest TPC shareholder according to data compiled by Bloomberg, said in August that the $40 bid from First Reserve and SK was an “outrage” and an attempt to steal the company at the bottom of the industry’s cycle.

TPC competes in the market for butadiene, a chemical used to make synthetic rubber, with LyondellBasell Industries NV, Royal Dutch Shell Plc and Exxon Mobil Corp. It plans to boost output by refurbishing a Houston plant to make the chemical from butane, a component of natural gas that has increased in supply with production from shale-rock formations.

Blackstone Control?

The higher bid is 34 percent more than TPC’s closing share price on July 24, the day before the possibility of a buyout was first reported. It values TPC at 8.5 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the 7.3 median multiple of 16 other chemical-industry takeovers worth at least $100 million announced this year, the data also show.

First Reserve and SK’s offer is superior to Innospec’s because it’s definitive, fully financed and can close months sooner, said Louis Meyer, a New York-based special situations analyst at Oscar Gruss & Son Inc. TPC’s decision to end due diligence should hasten Innospec’s decision whether to increase its bid, he said.

“If Innospec is serious, they are going to have to come back with an offer that’s effectively in the high $40s and fully financed,” Meyer said by phone.

‘Strategic Fit’

The takeover should receive regulatory approval by Nov. 15 and may close shortly after a Dec. 5 vote by TPC shareholders, First Reserve and SK said in a separate statement today. A buyout by Blackstone and Innospec wouldn’t be able to close until next year and may require the approval of Innospec shareholders, First Reserve and SK said.

There is little “strategic fit” between Innospec and TPC and an acquisition probably would dilute Innospec profit margins, First Reserve and SK said. They said such a deal could transfer control of Innospec to Blackstone, which has agreed to provide equity financing.

“We object strongly to the statements they have made, some of which are either false or misleading and which reflect a significant lack of understanding of Innospec’s business, its strategy and its proposal,” Innospec Chief Executive Officer Patrick Williams said in a statement today. “We have no additional comment at this time.”

Christine Anderson, a Blackstone spokeswoman, declined to comment.

‘Termination Fee’

TPC said the termination fee for the First Reserve and SK deal increased to $24 million. That equates to about $1.50 per TPC share, so any revised Innospec offer would have to be at least $46.50 to compensate for the fee while matching the $45 bid, Meyer said.

QVT Fund LP and and One East Partners have signed voting agreements in support of the transaction, First Reserve and SK said. QVT is the largest TPC investor with 17 percent and One East holds 4 percent, according to data compiled by Bloomberg.

Perella Weinberg Partners LP and Baker Botts LLP are advising TPC, and Skadden Arps Slate Meagher & Flom LLP is counsel to the special committee of TPC’s board. First Reserve and SK’s financial adviser is Jefferies Group Inc. and its legal counsel is Simpson Thacher & Bartlett LLP.

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