UPDATE 3-Chemicals company TPC to be sold for $627 mln

* Shareholders to get $40 per share in cash

* Including debt, deal valued at about $850 mln

* Shares trading above offer price

By Swetha Gopinath

Aug 27 (Reuters) - Chemicals maker TPC Group Inc has agreed to be taken private for $627.2 million by private equity firms First Reserve Corp and SK Capital Partners as prices for its main product, used to make tires, remain depressed.

TPC, which produces butadiene used in making synthetic rubber for tires and other automotive products, has seen a sharp fall in prices in recent months due to weak demand.

The company, which has been looking for strategic options since late last year, was forced to write down the value of its inventory in the second quarter. It reduced butadiene production capacity in April 2009.

The Houston-based company, however, has said it expects a long-term shortage in butadiene, a byproduct of the process of making ethylene, as ethylene producers shift to cheaper natural gas liquids such as ethane.

Making ethylene from ethane, instead of oil-derived naphtha, produces less butadiene.

First Reserve and SK Capital offered $40 in cash for each TPC share. The stock rose 30 cents higher than the offer price in early morning trade on Monday on the Nasdaq.

"We continue to believe $40 per share would be viewed as inadequate by many shareholders," Oppenheimer analyst Edward Yang , who rates the stock "outperform" , wrote in a note to clients.

The recent drop in butadiene prices should be short-lived, he said.

The deal value is just one percent higher than the TPC stock's closing price on Friday and 20 percent more than what it was trading at before Bloomberg reported on July 25 that the company was in discussions to go private.

TPC shares have risen 70 percent this year.

The deal, which is expected to close in the fourth quarter, is valued at about $850 million including debt, TPC said.

Shareholders representing about 22 percent of TPC's outstanding shares have entered into agreements to vote in favor of the deal, it said.

Perella Weinberg Partners LP advised TPC, while Jefferies & Co was the adviser for First Reserve and SK Capital.