Huntsman TiO2 would be good fit for Tronox – analyst

11 March 2013 16:15  [Source: ICIS news]

NEW YORK (ICIS)--Hunstman’s titanium dioxide (TiO2) business would be a good fit with US-based Tronox as the latter could seek to make a major acquisition, one Wall Street analyst said on Monday.

“Tronox recently announced its intent to raise $1.3bn [€1.0bn] in debt for ‘general corporate purposes and/or potential strategic alternatives’. Not surprisingly, this announcement has spurred investor questions surrounding further consolidation within the TiO2 industry,” said Hassan Ahmed, analyst at Alembic Global Advisors.

What could be motivating Tronox to pursue a deal include its stockpile of 3.5m tonnes of ilmenite ore and 211,000 tonnes of surplus rutile ore, along with wanting to utilise $1.6bn in US net operating loss carryforwards (NOLs), noted the analyst.

The NOLs sitting on Tronox’s books would offset any future earnings in the US.

And ilmenite ore is primarily used in the sulphate TiO2 production process rather than the more modern chloride processs. All of Tronox’s TiO2 production is chloride based.

“In our view, Tronox is looking for … sulphate process biased assets with some presence in the US. Via process of elimination, these parameters screen Huntsman’s pigment assets as the ideal candidate,” said Ahmed.

Huntsman’s TiO2 business consists of 565,000 tonnes/year of TiO2 production, of which 60% is sulphate based. It has one 75,000 tonne/year plant in Lake Charles, Lousiana, US, according to Alembic Global Advisors.

Ahmed estimates an acquisition price of $1.1bn-1.15bn for Hunstman’s TiO2 assets – in line with the $1.3bn debt financing planned by Tronox.

While US-based TiO2 producer Kronos also has some sulphate process plants representing 23% of total capacity of 637,000 tonnes/year, along with one chloride process plant in Lake Charles, the analyst said a deal would be unlikely because of antitrust issues stemming from Kronos’ heavy chloride process exposure.

Ahmed also rules our DuPont’s business (100% chloride based), as well as that of Cristal (8% sulphate exposure).

US-based Rockwood Holdings is also exploring strategic options for its TiO2 business Sachtleben, based in Germany.

One source in the financial community said Tronox could be considering either Huntsman’s assets or those of Rockwood.

But the analyst views a deal with Rockwood as unlikely.

“Rockwood can also ruled out from the deal wish list as it has no US assets, thereby disallowing optimal monetisation of Tronox’s US NOLs,” Ahmed said.

($1 = €0.77)

By: Joseph Chang
+1 713 525 2653

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