27 August 2012 20:33 [Source: ICIS news]
NEW YORK (ICIS)--Shareholders of US-based butadiene (BD) producer TPC Group may view the $40/share buyout offer from two investment firms as inadequate, one Wall Street analyst said on Monday.
“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,” said Edward Yang, analyst with global investment bank Oppenheimer.
He noted that the offer by global investment firm First Reserve and US private equity firm SK Capital Partners, represents only 10.4 times estimated 2013 earnings on a price/equity (P/E) basis and 5.0x FV/EBITDA (firm value/earnings before interest, tax, depreciation and amortisation).
The $40/share offer for TPC Group translates to $850m (€680m) in firm value, which is defined as market capitalisation plus net debt, falling far short of its $1.9bn in replacement value, Yang added.
Earlier, TPC entered into a definitive merger agreement to be acquired by First Reserve and SK Capital for $40/share in cash. That represents around $632m to take out an estimated 15.8m shares of TPC stock.
If the transaction is successful, TPC would become a privately held company in a rare leveraged buyout (LBO) of a publicly traded chemical company.
One of the most notable chemical LBOs was US private equity firm Blackstone Group’s buyout of then Germany-based Celanese in 2004 for $650m in equity. Three years and a US initial public offering (IPO) later, Blackstone walked away with around six times its initial investment.
Yang noted that TPC aims to double or triple its current $140m annual run rate of EBITDA within the next four years.
Even at its current EBITDA run rate, the deal represents a modest multiple of 6.1 times EBIDTA.
In addition, TPC “is currently under-earning due to [BD] legacy contracts entered in 2009, expiring this year”, noted Yang.
“Butadiene is structurally short and TPC is the number one C4 processor in North America with 35% overall capacity and $1.9bn-plus replacement value of plant,” the analyst said.
“Aside from growth, we think the company merits a higher valuation due to its increasingly quasi-industrial gas type model,” he added.
TPC expects the deal to close in the fourth quarter of 2012 and noted that stockholders representing about 22% of TPC’s outstanding shares have entered into agreements to vote in favour of the transaction.
Speculation of an impending deal had been widely reported in prior weeks.
ICIS called a potential LBO of the company feasible on 3 August based on strong expected cash flows and low debt levels.
Shares of TPC rose 67 cents, or 1.7%, to $40.26 in late afternoon trading on the New York Stock Exchange.
($1 = €0.80)
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