12 October 2012 09:35 [Source: ICB]
The company aims to back-integrate its fuel and lubricant additives business with a bid to acquire TPC Group. And bringing in a private equity partner makes sense
UK-headquartered specialty chemicals firm Innospec's interest in acquiring US-based butadiene (BD) producer TPC Group is likely being driven by the latter's production of a key component in fuel and lubricant additives.
Innospec sets its sights on back-integration
"Innospec is probably interested in TPC's Performance Products business - fuel and lubricant additives," Ed Yang, analyst with investment bank Oppenheimer, notes.
TPC is North America's "sole merchant producer of highly reactive polyisobutylene, a major component of dispersants for the fuel and lubricant additive markets", it stated in its 10-K annual filing with the US Securities and Exchange Commission in February.
On 8 October, TPC announced that it received a non-binding proposal to be acquired by Innospec through an all-cash purchase price in the range of $44-46/share. Equity financing would be provided by US private equity firm Blackstone. The proposal trumps a deal by global investment firm First Reserve and US private equity firm to buy TPC for $40/share, which was announced in August.
That deal was blasted by Thomas Sandell, CEO of Sandell Asset Management, as an attempt "to steal the company at a grossly suboptimal price in a sweetheart LBO [leveraged buyout] with a favoured buyer in an impaired sale process at the bottom of the cycle". Sandell owns about 6% of TPC's shares.
"We are not surprised [at the new proposal], as we'd been consistently doubtful that a transaction could close at $40/share given that it significantly undervalues the company and [that there would be] limited downside to rejecting [it]," said Yang.
The analyst expects TPC to be sold in the $50/share range, representing multiples of around 13 times price/earnings and 5.8 times earnings before interest, tax, depreciation and amortisation (EBITDA).
TPC's Performance Products business - which makes products for fuel and lubricant additives among other specialties - generated $271m (€209m) in sales in the first half of 2012, accounting for about 20% of total sales. Innospec's fuel specialties segment comprises the bulk of the company's business. In the first half of 2012, the segment generated $245m in sales, accounting for 65% of sales.
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