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TPC’s Proxy Decoded

Last week, TPC put out a proxy statement for its controversial $40.00-per-share sale to First Reserve and SK Capital. Shareholders, as evidenced by quotes between $41.00 and $42.00 for the company, are looking for a better offer. And Sandell Asset Management, which owns about 7% of the firm, has been outspoken against the deal. In such cases, disgruntled shareholders always argue that company management didn’t do enough to shop the company around for a better price.

The Chemical Notebook has examined the proxy to get an idea about who was kicking in TPC’s tires and how serious they were:

First Reserve (private equity) and SK Capital (private equity): These companies first darkened TPC’s door in early December with a $30.00 to $35.00 offer. This was rejected by TPC management. However, in early January, TPC and these parties signed a confidentiality agreement and First Reserve and SK conducted due diligence. These efforts yielded a $40.00 to $42.50 proposal by mid-February and a merger agreement was drafted. But in March, TPC’s stock price climbed to an all-time high of $47.03, forcing First Reserve and SK to abandon their bid. When the stock price declined back down in May, First Reserve and SK renewed their efforts. This yielded a $40 “best and final” offer in July. On July 27, SK and First Reserve signed an exclusivity agreement with TPC. The deal was announced on August 27.

Party A (strategic bidder) and Party B (PE): These firms first signed a confidentiality agreement with TPC in January. Later that month, they decided not to pursue a deal because of other priorities. These parties later emerged from time to time throughout the sale process. In May, they told TPC that they might submit a proposal, but they didn’t. In early August, they indicated that they might be interested again if TPCs stock price declined further.

Party C and D (both PE): These companies emerged in late January with a $38 to $38.50 offer. They presented TPC with a draft merger agreement in mid-March. They dropped out in mid-April because of the rising stock price. They reemerged in May 17 but dropped out for good on June 21 because of financing concerns.

Party E (strategic): Contacted by TPC representatives in late-February, Party E said that it wasn’t contemplating strategic investments. It told TPC in mid-May that it wouldn’t submit a proposal.

Party F (non-U.S. strategic): Expressed interest in early April. It said on May 18 it was interested in a bid. TPC representatives traveled to Party F’s headquarters in early June. At the end of the month, Party F informed TPC that it would not submit a bid.

Party G (strategic bidder): It was contacted by TPC representatives. In early June, it said that it was concerned with regulatory impediments (probably antitrust) to a merger. Later that month, it told TPC that there would be no merger due to those concerns.

Party H (strategic): Approached TPC in May but nothing materialized.

Party I (strategic): Indicated interest in late June and made a $36 per share proposal in July. Talks were promptly terminated.

The Chemical Notebook’s two cents: Interest in TPC seems meager. And the highest proposal it heard was $42.50 from SK and First Reserve. (Something would have to be dreadfully wrong if they don’t at least up the bid to that.) On the other hand, with shareholders recently seeing $47.00 per share, I do wonder why the company agreed to sell itself at all.

To counter that argument, TPC would likely point to expensive dehydrogenation projects that it needs to stay competitive. It argued as much in the proxy. The expenditures on these would exceed the company’s market capitalization, it said. Alternative financing strategies, such as forming a master limited partnership, would have to be employed. TPC shareholders would thus not benefit from all of the upside of these investments. True, but some of the upside is better than none of it.

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