Apollo Said to Mull Buyout of Former DuPont Unit Chemours

  • Firm said to consider Chemours as consoliation platform
  • Analyst says Tronox more likely to be acquired than Chemours

Apollo Global Management LLC is examining the feasibility of making an offer for Chemours Co., the former DuPont Co. chemical-manufacturing unit, and using it as a platform for consolidating other titanium-dioxide makers, people with knowledge of the matter said.

The New York-based firm held preliminary talks with bankers about a buyout of the company, which has a market value of about $1.4 billion, and then approaching other companies, including Tronox Ltd., about a tie-up to generate scale and cost efficiencies, said two of the people, who asked not to be identified because the information is private.

There are several obstacles to a deal, including a tax bill for DuPont if Chemours is taken private too soon after the July spinoff, the people said. Debt is also an issue, the people said: The company owes about $4 billion resulting from a payment made to DuPont prior to the split.

Supply Glut

There is also potential and existing litigation related to environmental practices. On Wednesday, DuPont was found liable for a woman’s kidney cancer in the first of 3,500 lawsuits over a toxic Teflon ingredient found in Ohio and West Virginia water, but the spinoff will have to bear any costs from the verdict. Chemours has carried on the Teflon business and agreed to take on many of DuPont’s legal obligations.

Apollo hasn’t approached Chemours about a deal to take it private, said two of the people, and may decide not to pursue a transaction. Other buyout firms also are looking, according to one of the people, but things are at a very early stage.

Chemours, the world’s biggest maker of titanium dioxide, has tumbled more than 50 percent since its spinoff from DuPont, while peer Tronox has fallen 72 percent this year. A multiyear global oversupply of titanium dioxide, a white pigment primarily used in paint and known by its chemical formula TiO2, has pushed prices to near a four-year low, reducing earnings across the industry.

Capacity Cuts

Chemours gained 7.1 percent to $8.43 Thursday in New York. The company’s $750 million of 7 percent notes maturing in May 2025 jumped 3 cents to 68 cents on the dollar at 4:17 p.m. in New York according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Shares of other titanium-producers rose. Tronox surged 16 percent, Huntsman Corp. 13 percent and Kronos Worldwide Inc. 5.7 percent.

"The market is saying Tronox is more likely to be bought," Hassan Ahmed, a New York-based analyst who recommends buying Tronox and doesn’t rate Chemours, said Thursday by phone. "Chemours clearly has issues that Tronox doesn’t."

Tax Shield

Chemours could end up paying about $5 billion, equivalent to its enterprise value, if it settles each of its Teflon-ingredient lawsuits for $1.6 million, the sum that the jury on Wednesday awarded in the first case, Ahmed said. On the other hand, Tronox has a $10 billion tax shield that can be used to offset U.S. taxes at any of Apollo’s businesses, he said.

Tronox, the largest TiO2 producer integrated with its own supply of titanium ore, is idling capacity to help tighten markets, while Chemours is shutting capacity in Delaware and Tennessee. Huntsman, the Utah-based company that paid $1 billion last year for the pigment assets of Rockwood Holdings Inc., plans to separate its TiO2 business by the end of 2016, similar to the Chemours spinoff.

IRS Rules

“Chemours does not comment on market rumors. Our focus is on driving the five-point transformation plan we announced in August,” Robert Dekker, a spokesman for Wilmington, Delaware-based Chemours, said in an e-mailed statement.

The company is on track to add $500 million in adjusted earnings before interest, taxes, depreciation and amortization and reduce leverage to about 3 times net debt to adjusted Ebitda in 2017, he said.

“Actions by Chemours post-spin are subject to specific IRS rules related to the spin,” Gregg Schmidt, a spokesman for DuPont, said in an e-mailed statement. “Those rules are complex and very fact specific.”

A spokesman for Stamford, Connecticut-based Tronox declined to comment. A representative for Apollo didn’t respond to telephone and e-mail requests seeking comment.

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