Markets raise doubt about US Tronox/Cristal deal, Ohio plant sale

Al Greenwood

07-Dec-2018

HOUSTON (ICIS)–Shares of US-based pigment producer Tronox continued falling on Friday after a steep decline that exceeded 20% on Thursday – a sign that the market doubts that the company can get US approval to close on its pending acquisition of Cristal.

Image by Shutterstock

Tronox has been struggling to find a remedy to placate anti-trust concerns of the US Federal Trade Commission (FTC), which has yet to approve the acquisition.

In December 2017, the regulator filed an administrative complaint challenging the deal, alleging that the Cristal acquisition would reduce competition for chloride-based titanium dioxide (TiO2).

Tronox has disagreed with such allegations, alleging that the Cristal acquisition would allow it to produce even more TiO2. The result would make more pigment available to customers around the world.

Nonetheless, Tronox attempted to address these concerns by proposing to sell Cristal’s TiO2 complex in Ashtabula, Ohio.

In July 2018, it and Venator Materials entered into a binding memorandum of understanding (MoU), under which Venator would acquire Ashtabula’s two TiO2 plants for $1.1bn. The plants have a combined capacity of 245,000 tonnes/year.

That sales amount represented nearly half of Tronox’s $2.4bn bid to acquire Cristal.

Tronox and Venator failed to come to terms within the 75-day window offered by the MoU.

Late on Tuesday, Tronox announced that it lined up another potential buyer. It is now trying to sell the plant to INEOS for $700m.

To proceed on the sale, Tronox had filed a motion with an administrative law judge overseeing the case, seeking permission to present the proposed sale as a remedy to the FTC’s competition concerns, the company said.

Tronox asked the court to make a determination within five days as to whether there is a reasonable possibility of a settlement, the company said. The company also wants the court to recommend that the FTC accepts the proposed sale as a way to address its concerns about the Cristal acquisition.

However, tucked in the announcement, Tronox said: “Staff at the FTC have indicated that they would not recommend the proposed remedy transaction to the FTC Commissioners.”

Traders apparently latched on to that statement, sending Tronox stock down sharply on Thursday. It closed at a decline of 23.18%.

On Friday, it was down by more than 2%.

If the judge rejects Tronox’s proposal to address anti-trust concerns, then it will have to find another remedy that will pass muster with the FTC. Otherwise, the deal will unlikely get US approval to proceed.

Tronox is running out of time. The administrative law judge in the case is set to make an initial decision on 19 December, according to court documents.

Tronox did not immediately respond to a request for comment about Thursday’s decline in stock prices or in regards to whether that decline indicates doubt about the company’s ability to close on the Cristal deal.

However, CEO Jeffry Quinn did say in Tuesday’s announcement that the proposed sale to INEOS eliminates the competitive concerns raised by the FTC and does so while providing the necessary foundation for the Ashtabula site to be successful.

“INEOS is an experienced and sophisticated purchaser of chemical operating assets, with dozens of successful acquisitions in the last two decades, particularly in chemical carve-out acquisitions,” Quinn said.

Cristal is also known as National Titanium Dioxide. Tronox announced its bid to buy the company in February 2017.

Tronox has already received approval for the deal from eight other regulators, including the EU.

The docket number for the administrative-law complaint is 9377.

Photo above shows white paint, which is made with TiO2. Image by Shutterstock

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