US Huntsman sues Albemarle over Rockwood tech

(adds Air Products comments, paragraphs 30-31)

HOUSTON (ICIS)–US-based Huntsman has sued Albemarle over technology it acquired when it purchased the pigment business of Rockwood Holdings, US-based Huntsman said.

Albemarle would later acquire Rockwood Holdings for $6.2bn in 2015. Because Albemarle now owns the business, Huntsman alleges that the company is liable for any damages.

Albemarle said on Thursday that it does not comment about pending litigation.

The technology in question is called Bluebird, and it involves reactors used to make red and yellow pigment out of low-cost iron feedstock, reducing the need for higher cost iron oxide powders.

In a lawsuit filed in New York state, Huntsman alleges that Rockwood over-promised on the Bluebird technology. Ultimately, Bluebird was not the proven game-changer that Rockwood portrayed at the time the companies were negotiating the pigment acquisition, Huntsman said.

Bluebird never worked as described by Rockwood, Huntsman alleges. Without Bluebird, Huntsman now says it would have never closed on the $1bn pigments acquisition. Huntsman wants to unwind the deal, something that could have significant implications for its pending spin-off of Venator Materials.

The events leading up to the deal go back to spring 2013, when Rockwood approached Huntsman about buying its pigment business.

At the time, the pigments business had undergone a fundamental change. In the past, Rockwood relied on iron oxide powders from China as a feedstock for its coloured pigments.

Over the years, China had removed tax refunds for the feedstock, Huntsman said. Meanwhile, the Chinese yuan had strengthened while domestic demand increased, further increasing the cost of the iron oxide powders.

Rockwood decided that it would need an alternative to the Chinese feedstock and decided to develop a new technology, Huntsman alleges. In the late 2000s, Rockwood started developing the Bluebird reactors at its plant in Turin, Italy. The technology was a potential game-changer because it could use cheaper iron scrap, reducing the need for iron oxide powders.

Rockwood then began building a plant in Augusta, Georgia, that would rely exclusively on the Bluebird reactors to make the red and yellow pigments, Huntsman alleges.

If Huntsman acquired the pigments business, it would gain this technology, which Rockwood portrayed as both proven and a game-changer in the industry.

Rockwood backed up its statements with data illustrating the high quality and production rates made possible by the new Bluebird technology, Huntsman alleges.

Huntsman could realise two benefits with Bluebird, the lawsuit says: The technology would eliminate the need to buy costly raw materials from China. In addition, Huntsman could shut down several inefficient pigment plants that it would acquire in the Rockwood deal.

However, the data that Rockwood used to back up these claims was false and misleading, Huntsman alleges.

“Rockwood misrepresented pigments data to Huntsman and lied about the performance of the Bluebird technology, which Rockwood knew did not work,” Huntsman states in its lawsuit.

The reactors at Turin repeatedly failed to make quality pigments and achieve the desired production rates, court documents allege.

Huntsman even alleges that an internal investigation by Rockwood acknowledged significant issues with the Bluebird reactors prior to the closing of the acquisition. Rockwood did not disclose the findings of this investigation to Huntsman.

“Rockwood thereby lulled Huntsman into the deal by keeping secret the biggest issue of all: that the Bluebird technology, the intended foundation of Rockwood’s colour pigments business, was not working,” Huntsman says in the lawsuit. “Rockwood’s pre-signing representations were nothing but lies and half-truths.”

Huntsman realised that something was wrong with the technology only after it spent months trying to start up the Augusta plant in accordance to Rockwood’s blueprint, the company alleges. Huntsman could never achieve the expected quality and production rates.

Huntsman alleges that Rockwood had plenty of motivation to entice Huntsman into the deal, court documents state. Once Rockwood sold the pigments business, it would be acquired by Albemarle. If Rockwood could not divest the pigments, Albemarle would call off the deal.

Everything depended on Bluebird, Huntsman alleges. If Rockwood revealed the failings of the Bluebird technology, Huntsman would abandon the pigments acquisition, and Albemarle would walk away from buying the rest of Rockwood, court documents allege.

In all, Huntsman accuses Albemarle of fraudulent misrepresentation, fraudulent inducement, fraudulent concealment, negligent misrepresentation, unjust enrichment and breach of contract. It is seeking damages in excess of $500,000.

In addition, Huntsman wants to unwind the acquisition. If this is not possible, then it wants the court to award it further damages.

Any potential unwinding is significant, because Rockwood’s pigments business makes up a significant portion of the Venator Materials business that Huntsman is spinning off. Venator will included Huntsman’s titanium dioxide (TiO2) business as well as the TiO2 and coloured pigments businesses that the company acquired from Rockwood.

Huntsman is still preparing to spin off Venator in Q2 2017, although it would not comment about any effect that the lawsuit could have on the timing of the separation.

In addition to Albemarle, Huntsman is also suing Rockwood and Sefi Ghasemi, who was CEO of Rockwood at the time.

Huntsman alleges that “Ghasemi was heavily involved in the sale of Rockwood’s pigments business to Huntsman and was aware of the problems with Bluebird and Augusta”.

Ghasemi is now the CEO of Air Products.

In a statement, Air Products said it is not a party to the lawsuit and it does not involve Ghasemi’s service at Air Products.

“Ghasemi has advised the company that he believes the allegations against him are entirely without merit and that he will vigorously defend himself against the claims,” Air Products said in the statement.

Other former Rockwood executives sued by Huntsman include Michael Valente, who is currently senior vice president, law and human resources, general counsel and secretary at Versum Materials. Versum did not immediately respond to requests for comment.

Also sued was Andrew Ross, who is now a director at Ferro. Ferro did not immediately respond to requests for comment.

Huntsman filed the lawsuit in the Supreme Court of the state of New York, county of New York. The case number is 650672/2017.